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UNITED STATES

Tread Carefully on U.S. Natural Gas SWF p56

AFRICA

ADIA is a Buyer of Hotels p14

REAL ASSETS

Sovereign Funds Embrace Direct Real Asset Deals p50

COVER STORY

The Public Investor 100 - Profiles and Rankings p20

Sovereign Wealth Quarterly The Source on Sovereign Wealth Funds and Other Long-Term Public Investors October 2013 | www.swfinstitute.org | @swfinstitute

SWF

Institute


Institute Fund Summit 2014 ASIA 21 - 23 April 2014 The Peninsula Hotel HONG KONG

www.ifsummitasia.com contact: support@swfinstitute.org Attendance will be limited, so reserve your place now. General information: support@swfinstitute.org For memberships, Vince Berretta, vberretta@swfinstitute.org For event sponsorships, Carl Linaburg, clinaburg@swfinstitute.org Sovereign Wealth Fund Institute 速 is a registered trademark of the Sovereign Wealth Fund Institute. SWFI tm.

SWF

Institute


content

Notes From the Editor 5

Exclusive Interview

3rd QTR SWFI Commentary 10

Deep Dive with Damon Krytzer, Trustee, the City of San Jose Police and Fire Retirement Plan 16

Quarterly Briefings 64 Asset Allocation & Strategy Hedge Funds Divulge Outlook for Sovereign Wealth 44 Peru’s Fiscal Stabilization Fund May Look Overseas for Investments 61 Australian Future Fund Posts 15.4% in 2012-2013 62 Thailand Sovereign Wealth Fund Proposal Strikes Again 77 Korea and Queensland to Build Stronger Institutional Investment Ties 78

Q&A with Uche Orji, CEO of the Nigeria Sovereign Investment Authority

52

Reflections with CEO/CIO of bcIMC, Doug Pearce 80 Features U.S. Pension Executives Ink Letters Concerning PE Alignment Issues 6 AIMCo Steps up Direct Investments, Less Reliance on Wall Street 8 The Public Investor 100 20 The Public Investor 100 - TABLE RANKINGS 22 The Public Investor 100 - PROFILES 24 Chance of Splitting Norway’s Sovereign Fund Increases as Conservatives Win 42

NSIA Appoints Stanbic IBTC as Local Custodian 81

Sovereign Funds Embrace Direct Real Asset Deals 50

Data

Tread Carefully on U.S. Natural Gas Sovereign Wealth Fund 56

Sovereign Wealth Fund Deal Info

Poll Results Are In! – SWFs and Managers Tell Us What Matters Most 59

60

Third Quarter LMTI Transparency Index - 2013 63 Sovereign Wealth Fund Directory

Real Assets The Abu Dhabi Investment Authority is a Buyer of Hotels 14

66

GIC Private Limited Buys Blackstone Stake in Broadgate Estate 46

Largest Sovereign Funds 79

Nigeria’s Sovereign Funds and IFC to Support Nigerian Infrastructure Development 47 Abu Dhabi Investment Council in Shiba Park Building Transaction 47


6

Sovereign Wealth Quarterly | October 2013

U.S. Pension Executives Ink Letters Concerning PE Alignment Issues

I

n general, U.S. public pension funds - more than sovereign wealth funds - need private equity to help reach their annual target returns. This give-take relationship manifests across America, even when partner alignment issues arise. What has taken center stage is when private equity firms take monitor fees and transaction fees on failing portfolio companies. The debt binge left a nasty hangover for many pre-2007 private equity funds. Side effects include poor fund performance, languishing portfolio companies and unemployed workers. Emboldened asset owners – some of the larger U.S. pensions are under fire from their support base, public sector unions, in what seems to be private equity firms making money from fees other than turning around actual portfolio companies.

Take for example, Caesars Entertainment Corporation, which TPG Capital LP and Apollo Global Management LLC took private with investor money, mostly public funds. The casino operator became saddled with debt affecting the financial health of the balance sheet. Coupled with top-line revenue shortfalls due to losses in gambling revenues, their investment faltered. While this is taking place, the two buyout firms charged Caesars Entertainment a US$ 200 million transaction fee on the US$ 30.7 billion buyout deal in 2008. In addition, the private equity firms have been raking in US$ 30 million per annum in monitoring fees charged to the casino company. Usually, when buyout investments do well, limited partners tend to look the other way. What can institutional investors do? First, they can write letters to

Oregon Public Employees Retirement Fund - History with TPG Capital Vintage Year

Fund Name

Capital Commitment (Millions USD)

Total Value Multiple

1994

TPG Partners I

50

3.66x

1997

TPG Partners II

300

1.77x

2000

TPG Partners III

300

2.47x

2003

TPG Partners IV

300

1.9x

2006

TPG Partners V

300

0.97x

2008

TPG Partners VI

750

1.22x

2008

Apollo Investment Fund VII

400

1.76x

Source: OPERF, Date: March 31, 2013

private equity executives telling how concerned they really are. This is what Rhode Island General Treasurer Gina Raimondo did. Raimondo is tasked with looking after the Employees’ Retirement System of Rhode Island. The public pension system invested US$ 20 million with TPG Partners V, the vehicle that invested in Caesars Entertainment. Gina Raimondo penned an August 19th letter to TPG Chief Investment Officer and Senior Partner, Jonathan Coslet, entailing that fund investors and private equity managers should “sink or swim together when investments don’t work out.” The Rhode Island State Treasurer articulated that TPG share monitoring fees with its limited partners. Heading West to Oregon, State Treasurer Ted Wheeler sent letters to executives at Apollo Global Management LLC and TPG concerning misalignment in LP interests. Wheeler, who is ranked #27 on the Sovereign Wealth Fund Institute’s Public Investor 100, is tasked with looking out for the best interests of Oregon’s public employee retirees. The Oregon Public Employees Retirement Fund has invested $300 million in TPG Partners V and $200 million in Apollo Fund VI, which also invested in Caesars – Oregon PERS is a major U.S. private equity investor. uu


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Investing for Angola`s future


14

Sovereign Wealth Quarterly | October 2013

The Abu Dhabi Investment Authority is a Buyer of Hotels Sovereign wealth funds are in the same lot as REITs, insurance companies, pensions and family offices in vying for hotel properties.

T

he Abu Dhabi Investment Authority (ADIA) is a major purchaser of U.S. institutional real estate through various sub-entities. It often buys partial interest ownerships with leading real estate managers. Gulf sovereign wealth investors are keen on hotels, especially in gateway cities. As the Sovereign Wealth Fund Institute’s transaction database makes clear, ADIA has been a direct investor in hotels for quite some time. For example, ADIA through a subsidiary, was the majority owner of the 1,190- room Hilton San Diego Bayfront, which they sold for $475 million to Sunstone Hotel Investors in mid-April 2011.

Australian Hotel Real Estate The demand for Australian hotel real estate has exceeded supply as large foreign buyers seek to acquire assets near business hubs. Due in part to competition between ADIA, local investors, Asian investors and Canadian pension funds, hotel transactions have greatly increased in Australia in the past three years. ADIA has increased their real estate assets in a deal with Tourism Asset Holdings Limited (TAHL) for a reported A$ 800 million. The deal was completed in September 2013 which includes 31 properties from TAHL to ADIA. The deal was viable as ADIA real estate officials were witnessed travelling to Australia to check out the properties. Privatized in 2002,

“In the range of $500 to $650 billion of sovereign wealth fund assets are allocated to real estate investments, excluding publicly-traded real estate securities,” commented Michael Maduell, President of the Sovereign Wealth Fund Institute. “According to our research and sovereign wealth fund transaction data, hotels are a strategic real estate investment for many Gulf sovereign investors.”

TAHL is partly owned by private investors including the Melbournebased Liberman family. The majority of the hotel properties in the portfolio are mainly leased by Paris-based Accor SA. In the United States, Marylandbased Marriott International Inc. has reached a preliminary agreement with ADIA to sell three properties. One is located in London and the other two are in Miami Beach and Manhattan. The deal is slated to total around $800 million. The properties are under construction and the sale would take place once they are completed. Marriott is being forced to offload the properties as rapid expansion plans were crushed by the Great Recession. The hotels in question are part of the Edition brand, a boutique strategy created by hotelier Ian Schrager. However, the brand is likely to survive considering the millions ADIA is willing to invest. Tellingly, a new Edition hotel is also being built in Abu Dhabi. uu


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130523_QUO_Imageanzeige_Sovereign Wealth Quarterly_RZ.indd 1

23.05.13 09:45


THE PUBLIC INVESTOR 100


The Sovereign Wealth Fund Institute has released a list of the 100 most significant and impactful public investor executives of 2013. These men and women command billions of assets, impacting the lives of stakeholders and constituents globally. The people on the list were chosen by SWFI staff – not influenced by asset managers, governments or consultants. They come from medium to largesized asset owners – sovereign wealth funds, public pensions, superannuation funds, central banks and other public investors. The size of managed assets is not the only criteria for ranking inclusion. Another significant factor is that some of these individuals have contributed or been part of important trends in the asset owner industry. Last, there are obvious names that could not have been left off the ranking.


38

Sovereign Wealth Quarterly | Public Investor 100

#22

#23

Chief Executive Officer New Zealand Superannuation Fund

Chief Executive Hong Kong Monetary Authority

Hailing from Auckland, Adrian Orr is the chief executive officer of the New Zealand Superannuation Fund (NZSF) – he has quite a story to tell. After spending years in England, he eventually had leading economist roles at both National Bank and Westpac. He then became the deputy governor of New Zealand’s Reserve Bank. After a competitive process, he landed his role at the NZSF. The fund is much bigger today since the time he took charge. Orr has marshaled the NZSF resources to embark on a variety of initiatives including creating a reference portfolio. The reference portfolio concept has gained traction among large asset owners.

A long-tenured public servant – before and after Chinese rule – Norman Chan is the chief executive of the Hong Kong Monetary Authority (HKMA) and one of the only central bank governors in our ranking. Chan is an expert in monetary policy, giving speeches and advising countries on macroeconomic issues. The reason for Chan’s inclusion is the size of the exchange fund and its impact in markets. Chan guided the HKMA through various economic scenarios affecting Southeast Asia including the Asian Financial Crisis and the recent credit meltdown. He also introduced renminbi banking services in Hong Kong – bridging differences between the island and mainland China.

Adrian Orr

Norman Chan

#24 Pehin Dato Abd

Rahman Ibrahim Minister of Finance II Ministry of Finance, Brunei Based in Brunei, Pehin Dato Abd Rahman Ibrahim is the minister of finance II at the Brunei Ministry of Finance. He is also deputy chairman of the Brunei Investment Agency (BIA). It was his influence that steered the BIA toward being an active institutional investor. Educated in England, Ibrahim has given over 32 years of public service and has held noteworthy posts in the government of Brunei. In 2001, he was acting managing director of the BIA – followed in 2004 as deputy minister of finance.


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