SWFs Lose $5 Billion on BP Oil Spill; PIMCO's El-Erian on the 'New Normal'

Since the Gulf of Mexico oil spill started in April, pulling down BPs share price, the governments of Norway, Kuwait, China and Singapore have lost billions of dollars.

(June 16, 2010) — Data compiled by Bloomberg shows the governments of Norway, Kuwait, China and Singapore have lost $5 billion on BP Plc’s share price collapse since the Gulf of Mexico oil spill started in April.

“BP was the Goldman Sachs of the oil industry,” said Christine Tiscareno, an analyst at Standard & Poor’s in London, to Bloomberg. “They were attractive because they had high dividends, were winning environmental awards and had done so well with exploration and production. If I were an investor, I would feel this is an unfair situation.”

While the Kuwait Investment Authority held 328 million shares of the company, Norway’s state fund held 336 million shares, or 1.79% of the company, a stake that’s dropped 1.1 billion pounds in value since the April 20 explosion aboard a rig in the Gulf of Mexico that killed 11 workers, Bloomberg reported. The Kuwait Investment Authority held 328 million shares, the People’s Bank of China had 1.1% of BP, and the Government of Singapore held 1.07%.

Among private fund managers, BlackRock ranks as BP’s largest shareholder with 1.1 billion shares, about 4% of which is with an index fund, iShares, and not actively managed. “As a matter of company policy, we cannot comment on individual holdings,” confirmed BlackRock spokesperson Melissa Garville.

For more stories like this, sign up for the CIO Alert newsletter.

The second-largest BP shareholder is Legal & General Group Plc with a total of 751 million shares.

Separately, Mohamed A. El-Erian, chief executive officer of Pacific Investment Management Co., wrote in a publication by the International Monetary Fund that sovereign wealth funds are poised to profit from a reshaping of the global economy, which he called the “new normal.” The manager of $1.1 trillion in Newport Beach, California, forecasted that during the next three to five years, the world economy will undergo below-average economic growth, more regulation and an increased natural rate of unemployment.

El-Erian wrote: “Sovereign wealth funds are at an advantage when it comes to managing the bumpy journey to the new normal: their stable and patient capital and long-term orientation in investment objectives put them in an excellent position to make a first move. Indeed, the question should not be whether this pool of patient capital is able to pursue a first-mover strategy — it is. The question is whether it is willing to do so. The demands on operational processes will test the responsiveness of sovereign wealth funds’ governance structures, the robustness of their investment processes, and the effectiveness of their internal and external communication activities.”



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

Manager Survey Shows Eroded Investor Confidence

A global survey of 207 fund managers reveals that investors have become less bullish about the global economy but have not given up on riskier assets.

(June 16, 2010) — According to Bank of America Merrill Lynch’s June Survey of Fund Managers, global fund managers have lost significant confidence in the prospects for economic growth and in the ability of corporations to improve profits. Yet, investors have not given up on riskier assets, finding equities as cheap as they have been since March 2009, with emerging market stocks seen as the most favored sector.

“Investors are starting to see the basis for Europe’s rehabilitation on the back of a more constructive outlook for the euro,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research, in a statement. “Risk appetite has stabilized…You haven’t really seen any panic from investors,” he said.

The survey revealed only 24% of respondents believe the world economy would strengthen in the next year, down from 42% in May and 61% in April. Global investors have expressed similar concerns over corporate profits. A total of 28% of the study’s respondents believed profits would improve in the coming 12 months, compared with 47% in May and 67% two months ago. In addition, 42% of the respondents in the June study described liquidity as poor, up 20 percentage points from May.

The June survey also showed global investors are feeling more hopeful about the outlook for Europe’s stocks and for the euro, with 19% of global investors predicting the euro will appreciate over the coming year, up from 7% in May.

Want the latest institutional investment industry
news and insights? Sign up for CIO newsletters.

“Global growth expectations have ‘double-dipped’ and positioning is more defensive but investors show little sign of panic,” said Michael Hartnett, chief Global Equities strategist at BofA Merrill Lynch Global Research, in a news release.

Meanwhile, the survey showed investors had sold energy stocks in the face of the Gulf of Mexico oil spill, with only 7% retaining an overweight position in the sector in June, down 30 percentage points from May. According to the news release, the drop represented the biggest monthly swing in energy the survey has recorded.

A total of 207 fund managers, managing a total of $606 billion in capital, participated in the global survey from June 4 to June 10, a period when global equities fell by 7.5%. The survey was conducted by BofA Merrill Lynch Research with the help of market research company TNS.



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

«