Swath of Frontier Economies to Create SWFs

Governments in at least nine frontier markets -- in countries in Africa, the Middle East and Asia -- are scoping out the possibility of setting up sovereign wealth funds.

(October 11, 2010) – Upwards of nine emerging and frontier market governments, enjoying some of the highest growth rates in the world following the unraveling of the global economy, are looking to set up sovereign wealth funds in order to more effectively manage surplus revenues and slash corruption.

According to Reuters, governments from at least nine frontier markets in countries in Africa, the Middle East, and Asia are looking inte the possibility of establishing such funds. “It’s a great idea, it implies a certain discipline,” Plamen Monovski, chief investment officer of Renaissance Asset Managers, which has launched two new Africa-focused funds, told the news agency. Monovski highlighted the example of Russia, which was successful in using its sovereign wealth capital – based on its petroleum wealth – to aid domestic companies during the financial crisis.

Government investment pools won’t be the only institutional investors looking to take advantage of the much spoken of ‘decoupling’ of the developing and developed world economies. As evidence of the increased attraction of frontier markets, investment in Africa has been championed by investment consultancy Rogerscasey, which favors debt, private equity, infrastructure, agriculture, and timber as African investment sectors. In a recent interview with aiCIO, Adam Tosh, managing director of investment solutions at Rogerscasey and the former chief investment officer of the Kentucky Retirement System, called Africa “the next frontier” and says that over the next five years, exposure to Africa should make up 1-2% of a total investment portfolio.

Cynthia Steer, Rogerscasey’s managing director and researcher of a new study on the topic, added that improving economic and political conditions in Africa has made investments more accommodating. “Promising political revolution is essential in improving the lives of the people who live there, as well as creating a stable environment for investors,” Steer commented in a statement. “Africa’s GDP growth has outpaced World aggregate GDP growth since 2001.” According to Steer, investors can find diversification while facilitating economic progress in what has been labeled as a troubled continent.

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<p>To contact the ai5000 editors of this story: Kristopher McDaniel at <a href="mailto:kmcdaniel@assetinternational.com">kmcdaniel@assetinternational.com</a> and Paula Vasan at <a href="mailto:pvasan@assetinternational.com">pvasan@assetinternational.com</a></p>

The board of the California State Teachers Retirement System has decided to lower its proposed commodities investment from a reported $2.5 billion to $250 million or less.

(October 11, 2010) — The board of the $134 billion California State Teachers Retirement System (CalSTRS) has limited its commodities investment to $250 million or less.

The board of the public pension decided to lower its proposed commodities investment from $2.5 billion. The plan was developed by the fund’s Innovation and Risk Unit, specifically by CalSTRS Investment Officers Carrie Lo and Steven Tong, who decided to lower the amount invested in commodities and allocate it over a three-year period to test how the investments perform. Investments may include commodity index futures and swaps, hedge funds and trend-following funds. CalSTRS chief investment officer Christopher Ailman has already endorsed the investment.

Separately, the California pension has invested $370 million in property during the second quarter of 2010, including a $200 million commitment to the Fortress Credit Opportunity Fund II, based on the recommendation of Cambridge Associates, IPE reported. Additionally, based on the recommendation of Bonuccelli & Associates, the fund invested $170 million in Pacific Cal II.

The pension fund has allotted 10.1% to real estate, or $13.14 billion through the end of June, which was divided into $8.9 billion in tactical and $4.2 billion in core.

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To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742