Korea and Barclays, Sensing an Opening, Pounce on Resources

In further evidence of the resurgence in resources and the willingness of SWF to partner with western investors, British bank Barclays is in talks with the South Korean Natural Resources Fund about joint investments in Africa, Asia, and Latin America.

(September 10, 2009) – Barclays, a close friend to sovereign wealth funds in the economic downturn, is set to allow such investors the ability to invest in natural resources alongside the British bank.

The South Korea Natural Resource Fund, multiple news sources are reporting, is in talks with Barclays—which has put upward of $1 billion into its natural resources unit over the past four years—about a $400 million investment tagged for natural resource allocation in Africa, Asia, and Latin America. The target investments would be physical assets and resources such as mines, power plants, and oil fields. The goal, it is reported, would be to hold such assets for three to five years before exiting.

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The talks, if successful, would echo a move by Chinese government funds, which have gone heavily into oil in recent years; the move also would signal an increasing belief that resource prices—recently pummeled by a bursting bubble and the global decrease in demand—are set to rebound. Fears of inflation following liquidity injections across the globe also are seen as driving investors into hard assets.

The potential venture between Barclays and the South Korean fund would be further evidence of many SWFs’ willingness to work with western-based investors. Part political, part strategic, this arrangement has been seen with many funds as of late, including the Abu Dhabi-based Mubadala’s partnership with Malaysia Development in a Malaysian energy and real estate deal worth upward of $1 billion; France’s Fonds Stratégique d’Investissement possible joint venture with Mubadala in the French biotechnology field; Korea Investment Corporation’s agreement with Malaysia’s Khazanah Nasional and the Australian QIC; and the joint venture backing Blackrock’s purchase of Barclays Global Investors formed by Chinese, Singaporean, and Kuwaiti SWFs.

The ties between Barclays and SWFs are especially tight. During the economic downturn, the bank sought and found investments from Abu Dhabi and Qatar wealth funds, avoiding British government intervention.

To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>

With the Colorado Fire & Police Pension Association dropping the strategy due to poor performance, the decline of portable alpha is no longer anecdotal—it’s a trend.

(September 4, 2009) – In a further sign that portable alpha strategies are falling out of favor with institutional investors, the $2.7 billion Fire & Police Pension Association of Colorado has announced that it will scrap its program.

According to numerous sources, the fund—which was, among other losses, exposed to Bernie Madoff’s Ponzi Scheme—will drop the strategy (meant to hedge out risk exposure to an underlying market and rely on manager skill to create excess alpha) because it failed to meet its performance targets.

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The Colorado fund had used hedge funds-of-funds managers Gottex Fund Management and GAM. GAM will be rolled into an absolute-return category, according to Pensions & Investments; the fund’s connection to Gottex ceased to exist in May. With these closures and cutbacks in equities and fixed-income—and pending approval come September—the fund plans to carve out allocations to absolute return and opportunistic strategies focusing on more illiquid holdings.

This move away from portable alpha mirrors that taken by another American pension fund, the $39 billion Massachusetts Pension Reserves Investment Management board (MassPRIM), which four weeks ago stated that it would no longer use portable alpha manager following a poor 2008 performance. For the three years MassPRIM used the strategy, annualized losses were nearly 19%, with fiscal year 2008 (ending June 30) losses amounting to nearly 50%.

New England Pension Consultants (NEPC) also has lowered expectations for the strategy, as has one of its clients, South Carolina Retirement Systems, according to the Money Management Newsletter. The Pennsylvania State Employees Retirement System also has made moves to divest from the asset class.

To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>