Largest Sovereign Wealth Fund Takes $3 Billion-Plus Hit on Apple Shares

Apple’s revelations last week of souring sales have sent shockwaves across the markets, wiping out billions overnight from investors’ holdings—among them Norway’s gargantuan sovereign wealth fund.

The $1 trillion-plus Government Pension Fund Global, the largest institution of its kind, lost more than $3 billion on its investments in the tech giant. Since 2009, the fund has been authorized to invest up to 60% of its portfolio in international equities, making it the largest shareowner in Europe. In 2016, the fund owned more than 1% of all global stocks and currently owns about 2.33% of all European shares, according to news website CCN.

At the end of 2018’s third quarter, the Government Pension Fund Global owned approximately $9.6 billion in Apple shares. Following Apple CEO Tim Cook’s admission that first quarter sales for 2019 would be about $5 billion less than expected due to President Donald Trump’s trade war with China and the slowing of the Chinese economy, the tech stock plummeted. The Dow Jones Industrial Average lost more than 600 points alone on the news. The massive sovereign wealth fund’s Apple holdings currently sit at $6.29 billion.

“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” Cook wrote. “In fact, most of our revenue shortfall to our guidance, and over 100% of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac, and iPad.”

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In response, analysts such as Morgan Stanley, Goldman Sachs, and UBS have cut their price targets for Apple shares, and others, such as Jeffries, have downgraded the company to a “hold.”

It is not known if the Government Pension Fund Global has sold any of its stake in Apple.

Tags: Apple, China, Government Pension Fund Global, Norway, Stock

Officials of the California Public Employees’ Retirement System (CalPERS) have talked to a co-founder of private equity firm Silver Lake and a second former fund executive from the firm as potential candidates to run the two investment teams at its planned $20 billion new private equity program.

CalPERS spokeswoman Megan White said in an email to CIO that David Roux, a co-founder of Silicon Valley-based Silver Lake, and Adam Grosser, who oversaw Silver Lake’s Kraftwerk fund, are among candidates that CalPERS has talked with to lead its private equity direct-investing efforts.

White stressed that no decision on hiring has been made and that a “fair number” of other candidates are also having conversations with CalPERS.

The CalPERS investment committee has not yet approved the new private equity organizations—a likely decision to move forward is expected in February or March—but negotiations have been occurring with potential investment teams for at least six months.

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Pension plan officials back in 2018 were given approval by the investment committee to begin negotiations to find investment leaders for the two proposed organizations.

One organization, called Horizon, would take buy-and-hold stakes in established companies, and the other, Innovation, would invest in late-stage venture capital companies in the technology, healthcare, and biotechnology sectors.

Silver Lake is known for its investments in technology companies and has assets under management of around $45.5 billion. Telsa Founder and CEO Elon Musk named Silver Lake as a funding source in his failed attempt to take the automaker private last year.

The company also helped take Dell Computer private back in 2013.

Roux co-founded Silver Lake in 1999 and served as its chairman and co-CEO. He moved away from day-to-day operations in 2010 and is no longer with the firm.

Roux currently serves as chairman of Jackson Labs, an independent biomedical research institute. He is also an independent trustee on the board of the Boston Scientific Corp., a director of the National Audubon Society, and a trustee of the Environmental Defense Fund.

Roux is being considered to lead the Horizon team. Grosser, who is being considered to lead the Innovation Team, was group head and managing director of the Silver Lake Kraftwerk fund, which specializes in investing in clean-tech companies.

“Silver Lake Kraftwerk has been focused on providing growth capital to technology and tech-enabled businesses driving efficiency across the operations, energy, and resources industries,” Silver Lake’s website says of the fund.

The website says Grosse, as of 2019, has transitioned to a senior advisor for the fund. He is not listed as a Silver Lake employee on the company’s website.

The Innovation team would also invest $10 billion over the next 10 years with its focus on late-stage venture companies.

White said it is just a coincidence that both Roux and Grosser have worked at Silver Lake.

CalPERS and Silver Lake have strong connections. Not only has the $345.6 billion CalPERS, the largest US fund, invested in several Silver Lake Funds, it also bought a 9.9% stake in the company back in 2008. The stake has since been sold.

CalPERS officials have said publicly that the success of Horizon and Innovation will depend on top investment talent running the teams.

John Cole, a CalPERS senior investment official, told the CalPERS investment committee on Dec. 17 that time was of the essence in getting the private equity plan approved because of the danger of top talent walking away.

“The kind of talent we need always has options,” Cole said, noting the competitive nature of hiring top investment teams.

Most of CalPERS’s 13-member investment committee support the two new private equity organizations but several have serious questions about their structure. CalPERS will fund Horizon and Innovation, but the general partners running the investment organizations will be in charge of investment decisions, bypassing entirely the CalPERS investment committee.

The two organizations would also not be subject to public disclosure rules, such as compensation levels of investment leaders and staff. CalPERS officials have acknowledged that top management in the new organizations could receive millions of dollars in compensation per year.

CalPERS officials see the new private equity investment organization as a way to expand its private equity asset class. CalPERS’s traditional $28 billion private equity organization is shrinking as the competition among institutional investors toughens to invest in co-mingled funds as limited partners.

CalPERS’s traditional private equity program would not be affected by the new investment organizations. Private equity is the pension plan’s best-producing asset class both short-term and long-term. Results as of March 31, 2018, show a 16.1% return for the preceding 12 months.

Tags: CalPERS, Horizon, Private Equity, Silver Lake