SWFs: The Bull's Best Friend?

[HenryTo]

Abu Dhabi Investment Authority's asset allocation, along with accompanying interview:

http://www.businessweek.com/globalbiz/content/jun2008/gb2008065_090162.htm

http://www.businessweek.com/globalbiz/content/jun2008/gb2008065_742165.htm?chan=top+news_top+news+index_news+%2B+analysis

[Suomodo]

Great post Henry,

If I got it right they invest about 1 bil USD per week or something in this range (half of that in US).... so its not that much, frankly speaking.. they can make some 50 DJIA points when they buy at once...

However I think these guys saved a bit in the last weeks and are going to shop below DJIA 12000 and they dont sell anytime soon.... at least some source of buyers in this enviroment...

[HenryTo]

Hi Suomodo,

The guys at ADIA are a rather sophisticated bunch. For a fund of that size, the best (and only) way to achieve decent long-term returns is to engage in smart asset allocation choices and at the lowest cost. That is why they have been dumping some of their hedge fund holdings recently and moving back into indexing strategies. Even if they could achieve a 50% after-fee return on a $1 billion hedge fund investment, it is a waste of time for them over the long-run given the monitoring costs and the 2/20 structure. The Citigroup investment was definitely a special case.

The $3 trillion in total SWF assets should not be taken lightly as this is now higher than the amount of assets held in US corporate defined benefits pension plans ($2.4 trillion; please see page 86 of the following document):

http://www.ici.org/pdf/12008_factbook.pdf

Moreover, these assets have continued to grow at a blistering pace. Sure, it is still dwarfed by the total amount of US retirement assets ($17.6 trillion), but it is becoming a formidable force and has the ability to influence markets - not to mention the ability to make targeted and individualized investments such as capital injections at the US investment banks. The US retirement market is still the biggest by far - so it is essential to keep track of mutual fund flows/change in aggregate allocation, etc - but by itself, it has no ability to project its buying power since it is a very fragmented market, unlike the ADIA or the Norwegian SWF, for example.

Speaking of the Norwegian SWF, they are currently underweight global equities so look for continued buying from them (to the tune of about US$50 billion) over the next few months

http://www.bloomberg.com/apps/news?pid=20601085&sid=aikVnn7gtwbg&refer=europe

Best regards,

Henry

[Suomodo]

Hi Henry,

I find this information of paramount importance as well,

SWFs + smart money a la Buffet (followed by short covering) are the only ones to buy in the next couple of weeks. When they decide to buy they set up the bottom.

I am trying to figure out who can absorb the 100+ billion USD shock wave of a sell off , and maybe 200bil if stop losses at supports are broken

ADIA has 0-5% in cash thats some 30bil, Buffet 70. I conclude its thus slightly more (or at least even so) important to consider when he and under what conditions he and other value investors step in...

Do you still think the January lows will hold in June?

I want to buy the panic, but am afraid of a crush of 5-10%, similar to breaking of 12500 in January

[rffrydr]

All that shines does not glitter. Already we've seen chinese allocated investment been turned back to state-owned banks. It's fair to suppose more will be redirected to earthquake rebuilding. Infratructure is always a tempting value for "developing" countries--and rightly so, as it has to potential of giving back for decades. Could direct purchases of oil be the abstraction of this? The circle would then have been completed....circulus vitiousus.

There is potential for continued support of hedge-funds, and certainly private equity. Political "cover" is now the word of the day.

Interesting question about lows and retests in the finanicials and oils (SP). Inflation puts two different values at the same price on the latter and regarding the former: dilution, heavy dilution hardly represents the same share. One has to focus to find the "write-up" recovery.

What about Yield, S.? Not enough panic for you? I don't know what is the level to buy but I'm sticking with my idea that 6% Unemployment might be the right mood. ADP is missing the layoffs in the financials almost completely--but this should reverse sooner than later. Abu Dahbi showing some impulse to LEAD new carbon lifestyles--they may end up investing in themselves.
_________________
Today is the Tomorrow you worried about Yesterday!

[Suomodo]

[HenryTo]

Should SAFE (China's State Administration of Foreign Exchange) be considered a SWF?

http://blogs.cfr.org/setser/2008/06/11/should-safe-be-considered-a-swf/

[HenryTo]

Look for Chinese SWF money to buoy the New York City real estate market over the next few years:
--------------------------------------------------------------------------------
Chinese renew interest in U.S. property
Mon Jun 23, 2008 3:59pm EDT

NEW YORK (Reuters) - Chinese interest in U.S. commercial property is back, and this time Chinese investors may become significant players as the nation devises a vehicle to divert large amounts of funds for foreign investment, a Cushman & Wakefield executive said on Monday.

Flush with dollars from a huge trade imbalance, Chinese sovereign wealth funds are beginning to test the waters in New York real estate, said Scott Latham, executive vice president, Capital Markets group for real estate services company Cushman & Wakefield.

"They are coming. We've seen them in the bidding process over the past four months on a number of assets we've handled," Latham said at the Reuters Global Real Estate Summit in New York.

They were recently among the throng of bidders for three of seven former Equity Office properties marketed after Harry Macklowe defaulted on loans he used to buy them last year, he said.

Latham is one of the most powerful commercial real estate brokers in Manhattan, the largest U.S. commercial real estate market. He has shepherded deals such as the $1.72 billon sale of the MetLife Building, the $1.8 billion sale of 666 Fifth Avenue and the $675 million sale of The Plaza Hotel.

"I think that unlike the Middle Eastern sovereign wealth funds, they have not yet figured out an efficient way to get the money out of their country," he said.

Back in the depths of the real estate depression in the early 1990s, private individuals from Hong Kong were big players in New York real estate. A group headed by Henry Cheng, for example, was able to buy a distressed loan and control of the property from Donald Trump for less than $100 million along the West Side and make a killing when they recently sold it for $1.8 billion.

"Almost every one of those investments was an absolute home run," Latham said.

Because of cumbersome methods of moving capital, Chinese sovereign funds did not participate in the fast-moving boom of the past five years. However, with developing methods of moving funds and the slower pace of real estate deals in the wake of the U.S. credit crunch, Chinese investors will likely become more dominant U.S. real estate investors, Latham said.

[Odysseus]

I hope the Chinese do invest in American real estate. Yet I fear they will someday send gunboats up the Mississippi to protect their laundry interests.

Sorry. Couldn't resist!

If they come in now, it's at the top. Better for them to buy a junior Canadian Palladium miner. Hint hint...

To be fair, I suspect the noodle eaters in the north will buy Hawaiian real estate while the rice eating south will be happier in San Fran or Vancouver. New York city is sooo last century.
_________________
Psychic with Alzheimers. I can predict what I will forget.

[HenryTo]

UAE goes on record - says that the $800 billion asset number of the Abu Dhabi Investment Authority has been "exaggerated":

http://www.gulfnews.com/business/Investment/10224443.html

[HenryTo]

JPM sharpens its focus on sovereign wealth funds. Interestingly, many investment banks are focusing on these efforts from Hong Kong - no doubt because of its proximity to mainland China, Singapore, etc. Following is courtesy of the WSJ:
---------------------------------------------------------------------------------
J.P. Morgan Eyes Sovereign Clients
By RICK CAREW
June 30, 2008 1:15 a.m.

HONG KONG -- Sovereign-wealth funds have become the finance world's new investment power, and J.P. Morgan Chase & Co. is joining the ranks of Wall Street banks trying to cater to them.

J.P. Morgan has tapped John Moore, formerly Bear Stearns Cos.' chief executive for Asia and a former J.P. Morgan employee, to lead a global team of bankers focused on serving sovereign-wealth funds -- government-controlled investment pools. He will be based in Hong Kong, but also serve clients in Europe and the Middle East.

The sums of money managed by the funds dwarf those held by private-equity and hedge funds. J.P. Morgan expects that sovereign-wealth funds' assets under management could grow to as large as $9.3 trillion by 2012, up from an estimate of between $3 trillion and $3.7 trillion at the end of 2007. Sovereign-wealth funds are investing in a broader class of assets in an attempt to boost returns, making them increasingly important clients for investment banks.

J.P. Morgan joins the list of Wall Street firms setting up specific roles for people to focus on providing services to sovereign-wealth funds.

In April, Lehman Brothers Holdings Inc. appointed its head of consumer, retail and media for Europe, Middle East and Africa, Makram Azar, to the newly created role of global head of sovereign-wealth funds to be based in Dubai. Last year, Morgan Stanley hired Dino Kos, a former official at the Federal Reserve Bank of New York, to move to Hong Kong to lead their coverage of central banks and sovereign-wealth funds.

"You can't treat sovereign-wealth funds like another private-equity firm or hedge fund," Gaby Abdelnour, chairman and CEO for Asian-Pacific operations at J.P. Morgan, said in an interview. "We need to offer them services across a broad range of products from investment banking to asset management and treasury services. We're hiring John Moore because we want to streamline our approach and grow our client base."

Mr. Moore spent five years with J.P. Morgan from 1996-2001. He also has experience in Europe, leading various parts of Bear Stearns' fixed-income business. He moved to Hong Kong in 2007 to be chief executive of Bears Stearns's relatively small Asian operations.

Wall Street and the sovereign-wealth funds of Asia and the Middle East have gotten to know each other a lot better over the past year as these huge pools of wealth have bought stakes in some of Wall Street's biggest names to plug holes in balance sheets hurt by the U.S. subprime crisis. Last year, Abu Dhabi Investment Authority pumped $7.5 billion into Citigroup Inc. and China Investment Corp. invested $5 billion in Morgan Stanley.

While the deals have been welcomed by bankers, they have stirred controversy in Western capitals among politicians concerned that sovereign funds could use their influence to support the political objectives of their governments. Sovereign-wealth funds deny that and insist they are merely seeking returns.

[HenryTo]

Saudi Arabia sets up new sovereign wealth fund:

http://www.ft.com/cms/s/0/15285a98-5299-11dd-9ba7-000077b07658.html

[rffrydr]

That is a change of "character." Maybe one changed for them.

Am now long uRE and GM. The SWF connection to the first is obvious...the second? Watch for it.
_________________
Today is the Tomorrow you worried about Yesterday!

[HenryTo]

http://www.ft.com/cms/s/0/cc744d50-59e3-11dd-90f8-000077b07658.html

[HenryTo]

http://www.ft.com/cms/s/0/a84e2684-634e-11dd-9fd0-0000779fd2ac.html