FT : Sovereign wealth funds pull $90bn from asset managers

Sovereign wealth funds pull $90bn from asset managers
State-backed investment vehicles grapple with low commodity prices and disappointing returns
Sovereign wealth funds have pulled almost $90bn from asset managers over the past two years, as state-backed investment vehicles grapple with low commodity prices and disappointing returns.

The outflows mark the longest sustained period of redemptions, adding pressure to asset managers already smarting from a low-yield environment and volatile markets.
According to eVestment, the data provider, sovereign wealth funds withdrew at least $86.5bn from investment houses during the two years to the end of June. In the last quarter alone, sovereign funds pulled a net $15.8bn from asset managers — the second-highest level of quarterly redemptions since eVestment began gathering data in 2006.
Ian Smith, a partner focusing on investment management at KPMG, the consultancy, said: “There has been a lot of flows out [of asset managers from state funds] because of the lower oil price and the repatriation of assets for activities domestically.”
Some governments in oil-rich countries have been forced to raid their wealth funds in response to the decline in the oil price, which has more than halved in price since mid-2014.
The Norwegian government has tapped the Scandinavian country’s $890bn oil fund, the largest sovereign wealth fund in the world, for almost $6bn this year.
Moody’s, the rating agency, has predicted that sovereign outflows would be at least 25 per cent higher in 2016 than in 2015, due to the low oil price.
There are now hopes that an agreement between the world’s biggest oil producers to cut production, which was reached last month, will help drive up the price of oil. This could help slow down or end redemptions by some sovereign funds.
Peter Laurelli, vice-president of research at eVestment, said: “[State funds] face a diverse set of unique factors impacting their decisions related to external asset managers. Over several years, we have seen a positive relationship between commodity prices, particularly oil, and [state fund] flows to external managers.
“It is normal to be concerned when large investors are persistently redeeming assets.”
The eVestment figures are based on data supplied by asset managers on their sales and redemptions. Some asset managers, including BlackRock, the world’s largest fund house, do not disclose their dealings with sovereign funds.
Michael Maduell, president of the Sovereign Wealth Fund Institute, the research provider, said the low oil price was not the only reason state-backed investment vehicles had reduced their reliance on investment managers in recent years.
“Bad performance” by fund houses, a shift in asset allocation and a need for liquidity were also factors, he said. “In some cases, [state funds are] looking to have more cash on hand for opportunistic deals.”
Some sovereign funds are also taking back cash from asset managers to manage it themselves, Mr Smith added.
Additionally, there are signs that sovereign wealth funds are redeeming money from asset managers in an attempt to diversify their investment portfolios. Research by Invesco, the US fund manager, earlier this year found that state funds are piling into property at an unprecedented pace as they seek higher returns.
Sovereign funds including the Qatar Investment Authority, the ninth-largest sovereign fund in the world, have made a spate of high-profile property investments over the past year. The Qatar fund purchased Asia Square Tower 1 in Singapore’s Marina Bay business district in June.
According to eVestment, gross new money flowing to asset managers from state-backed investors has fallen to its lowest level since at least 2011. “That speaks to the breadth of redemption pressures,” said Mr Laurelli.
The consistent outflows since mid-2014 are a sharp reversal of the investment pattern of previous years. State-owned funds allocated more than $50m to asset managers during 2011 and 2012.
A study by Bocconi University in Milan earlier this year also found that sovereign wealth funds are investing less money directly than at any time in the past few years, marking the end of the safety net whereby state-backed vehicles mopped up assets in times of market stress.

NYT : Salesforce Shareholders Besiege Possible Twitter Deal

Salesforce Shareholders Besiege Possible Twitter Deal

On Sept. 23, news broke that Mr. Benioff’s company was in discussions to buy the troubled social media company Twitter. Inside the offices of hedge funds and mutual fund companies on Wall Street and elsewhere, investors in Salesforce immediately began to question the rationale for buying Twitter. They were not happy.

The investors made their concerns known to Mr. Benioff. In emails and other communications, the shareholders told the chief executive and Salesforce’s investor relations team that they disapproved of a tie-up with Twitter.

The effort was led by Fidelity Investments, the mutual fund firm that is Salesforce’s largest shareholder, with about 14 percent of the company. At least one Fidelity portfolio manager emailed Salesforce about the deal being a bad idea, according to people briefed on the correspondence, who spoke on the condition of anonymity because the communications were private. Other Salesforce investors, including hedge funds, said they would sell the company’s stock, according to two people with knowledge of the communications.

By this Wednesday, when Mr. Benioff spoke at an investor meeting at a San Francisco hotel, his language about any deal had turned conciliatory and defensive.

“I read all of your notes, you probably know that,” Mr. Benioff said. “I also read your emails. And as I digest all of that information, this is actually the No. 1 thing that has been on my mind. In some cases we have been unusually surprised and we have had to do a reset.”

The pushback offers a window into how big investors can exert pressure on would-be deals behind the scenes. Salesforce is particularly vulnerable to what its large institutional investors think because the unprofitable online software company relies heavily on its stock to make acquisitions and pay employee compensation. As a result, the company needs to keep investors happy for its share price to continue going up.

Salesforce declined to comment, as did a representative from Fidelity.

It is unclear whether or not Mr. Benioff will continue to pursue Twitter. One person involved in the negotiations said that, for now, Salesforce’s shareholders have halted a potential deal.

For Twitter, that would mean that its options have narrowed. The social media company had been talking to potential buyers, as well as considering divestitures and layoffs to focus its business. But companies including Google, Apple and Disney are not interested in buying Twitter, people at those companies said, and Salesforce appeared to be one of the last interested parties.

Twitter as well as Google and Apple declined to comment. Disney did not respond to calls. Recode earlier reported that Google, Apple and Disney would not make bids.

Even though Salesforce is a 17-year-old company, in some ways Mr. Benioff still runs it like a start-up, making promises of boundless growth and equity riches for all employees.

Salesforce does not have much cash on hand — just over $1 billion as of the end of July — compared with other tech companies, which makes it important that shareholders continue to buy its stock and enhance its value. Unlike behemoths like Microsoft, Apple and Oracle, which can turn to their multibillion-dollar cash hoards for deals, Salesforce must use a combination of stock and borrowed money to buy companies.

If shareholders were to sell and drive down the value of Salesforce stock, that would hurt Mr. Benioff’s deal-making capabilities. Salesforce needs to aggressively acquire companies to keep its revenue growing as its core business, customer-management software, slows, said Mark Moerdler, a senior research analyst at Sanford C. Bernstein.

The company’s reliance on stock can sometimes be a negative. Earlier this year, for example, Salesforce offered a higher per share price than rivals to buy the professional social-networking site LinkedIn. Yet LinkedIn ultimately took a lower offer from Microsoft that was all in cash.

Salesforce also depends on stock to pay its employees. During the company’s fiscal year ended Jan. 31, it paid out $593.6 million in stock-based compensation, about 8 percent of its total sales.

The recent investor pushback puts Mr. Benioff, who has long been a shareholder darling, in an unfamiliar position. Salesforce shares have zoomed higher since pricing at $11 in its initial public offering to around $71 now, as investors clamored to own a piece of one of the first companies to successfully convince big enterprises to rent out software that is stored in the cloud, rather than own it and run it themselves.

But after the Twitter news broke, investors pushed the stock down by as much as 8 percent over the next 10 days.

On Wednesday, during Mr. Benioff’s investor meeting where he sometimes gazed upon his own image projected on an enormous screen above the crowd, he bristled at times over the shareholder reaction.

“Well, what about this one deal right here!” Mr. Benioff said, using a shrill and mocking voice to imitate one shareholder email. “I mean the kind of things that I have been reading in the emails are so extreme I am like, Jesus, do they really think that we would do a deal at that level?”

Mr. Benioff emphasized that he is a careful deal maker who is sensitive to what any acquisition might mean for Salesforce’s shareholders, which include large, influential institutions like T. Rowe Price, BlackRock, Sands Capital Management and Harbor Funds. “I don’t believe in running the company like a lone wolf,” he said, pointing to his board members who sat in the front row.

But he still left the door open, ever so slightly, for future acquisitions. “We believe innovation happens not just in Salesforce, but in other companies,” he said.

>>> BOJ Gov Kuroda: difficult to achieve balanced economic growth with monetary

BOJ Gov Kuroda: difficult to achieve balanced economic growth with monetary policy alone - IMF annual meeting 
- will adjust monetary policy if necessary to maintain economic momentum and achieve 2% inflation target
- there will not be any significant changes in management of BOJ balance sheet under the new policy framework
- don't think there was a strong feeling shared among G20 that monetary policy was reaching its limits or that an over-reliance on monetary policy was causing big problems
- from the viewpoint of policymakers, a negative interest rate policy and asset purchases are not mutually exclusive
- Based on Japan's experience, the argument that a central bank can lift inflation expectations of various entities simply by raising its inflation target seems a bit naive to me

(TechCrunch) Wheego and Valeo get California road driverless testing permits

Wheego and Valeo get California road driverless testing permits

Self-driving car testing in California is becoming a badge of progress for companies working in the space. Only 17 companies in total have the honor, including two just added to the list: Wheego Electric Cars and Valeo North America.
The Wall Street Journal reports that both of these new companies now have approval to run tests with a single vehicle each and four drivers per team. That might not sound like much, but it’s a foot in the door, and membership in the club is itself somewhat testament to how much the companies have already accomplished, since the other members include major carmakers like Tesla, Cruise (which got its license before being acquired by GM), promising startup Drive.ai, and Baidu, to name a few.
The new members are interesting additions: Wheego is an electric carmaker which got its start taking Chinese-built cars, outfitting them with battery’s and electric motors in the U.S. and putting them on the road. The company now says it builds electric vehicles designed “for a global market,” and focuses on the benefits of connected tech in making vehicles aware of their surroundings.

Valeo North America is a subsidiary of Valeo SA, a multinational car part supplier base in France which creates everything from powertrains, to lighting and wipers, to driving assistance and connected car components. Valeo’s autonomous test car, dubbed the Cruise4U, managed a full 24 hours on the Paris Beltway in one driving session in late September, with 99 percent of that time spent under fully autonomous drive mode, excepting the breaks it took to swap out human test drivers.

(ZH) Norway Announces Massive Withdrawals From Sovereign Wealth Fund To Cover De

Norway Announces Massive Withdrawals From Sovereign Wealth Fund To Cover Deficits

Back in August, we noted that, for the first time since it's creation in 1996, the Norwegian government had started raiding its sovereign wealth fund to cover government deficits. Now, as noted by Bloomberg, the Nordic country has revealed plans to massively increase withdrawals by over 25% in 2017, to $15 billion. The money would be used to cover Norway's budget hole that’s expected to be roughly 8% of GDP.
Of course, Norway's ultimate GDP potential, and therefore budget deficits, are heavily dependent on oil prices so any further weakening of crude could result in even more withdrawals. Moreover, given the substantial YoY increase, it's important to recall that there are fiscal limits imposed on fund withdrawals equal to 4% of assets, or roughly $36 billion, which could come into play at some point in the future if oil prices remain "lower for longer."


“What’s worrying is the enormous pace,” said Torstein Tvedt Solberg, a member of parliament and a finance committee member for Labor. The largest opposition party has asked the fund “about the threshold for when it becomes really problematic for them and the signal they’ve given us is that it’s 150-200 billion kroner. With the pace we’re seeing now, we’re beginning dangerously fast to come close to the critical level.”

Of course the withdrawals have accelerated just as the heavily oil-dependent economy of Norway has started to absorb the impact of lower oil prices.




As we previously pointed out, the Norwegian government first started to withdraw funds from its sovereign wealth fund to cover government deficits in 1Q 2016.

The contemplated $15BN withdrawal in 2017, would imply a 36% surge in withdrawals over the 1H 2016 run-rate of approximately $11BN. To put those withdrawals into perspective, Norway's economy generates roughly $375 billion of annual GDP and federal spending accounts for roughly 60% or $225BN. Therefore, a $15BN withdrawal in 2017 represents roughly 7% of total government spending.
In a previous interview with Bloomberg, Egil Matsen, the Deputy Governor at Norway’s Central Bank, said the withdrawals were starting to impact the manner in which the fund manages its risk profile.


"Relevant for how we think about the risk-bearing capacity of the fund. Say you have a decline in the equity market, and these returns have been partly funding the government, do you want variations in international financial markets to have a direct impact on fiscal policy?”
Matsen, among others, has also questioned whether the 4% fiscal limits on withdrawals were the right cap in the current return environment noting that “as the older bonds come to maturity and are reinvested, a big chunk of that will be reinvested in bonds with very low or even negative yields.”
But Finance Minister Siv Jensen dismissed criticism of the withdrawals saying that the administration is using the fund as was intended noting that withdrawals remain below the fund's annual return target of 4%.


“Now that we are in an extraordinary situation, hit by the biggest oil price shock in 30 years, it would be crazy if we didn’t have an expansionary fiscal policy,” she told Bloomberg. Jensen rejected suggestions that the fund was “vulnerable.” She described it as “rock solid.”

The fund’s managers have warned it’s getting harder to live up to a real return target of 4 percent. It has returned 3.44 percent over the past 10 years. For now, planned withdrawals aren’t big enough to force the fund to sell assets. It estimates income from dividends, real estate and bonds will reach 207.5 billion kroner next year, almost double the amount the government plans to withdraw.
While we could debate the merits of Norwegian fiscal policy, at least the country is actually funding deficits as they're incurred. That would seem to be a "slightly" better approach than the U.S. plan which calls for printing more cash to fund massive deficits while ignoring the long-term impacts of ballooning national debt that can't possibly ever be repaid.

>>> Barrons weekend update: positive on EBAY, SHPG, LKQ Cover story: Barron's fi

Barrons weekend update: positive on EBAY, SHPG, LKQ 

* Cover story: Barron's first annual list of the Top 200 Sustainable Mutual Funds is topped by Transamerica Large Cap Value, Davis Opportunity, American Century Equity Income, Loomis Sayles Growth, and Skybridge Dividend Value; The list is comprised of U.S.-based large-company, actively managed funds with the most sustainable portfolios, ranked by one-year returns.

* Features: 1) Positive on EBAY: Company is overhauling how it lists merchandise for sale in a bid to address shortcomings that had dented growth; with expectations low and a modest valuation, contrarian investors should buy; 2) Positive on SHPG: Pharma giant continues to make acquisitions, growing a pipeline of drugs "capable of propelling sales and profits for years"; the acquisition of Baxalta could boost shares by more than 25%; 3) Positive on LKQ: Auto insurers increasingly seek lower-cost repairs, benefiting the provider of recycled and refurbished bumpers, fenders, hoods, and axles.

* Tech Trader: It may be too soon to declare that the tech IPO market is back, says Tiernan Ray, but it's beginning to feel that way; Investors should keep an eye on component makers such as MRAM and FMAX, because they usually come to market with a roster of customers; Cloud and equipment vendors also tend to do well, while makers of integrating computing systems have struggled. 

* Trader: Economic growth should continue to boost markets in the long run, says Jason Price of Glenmede, and the current economic expansion isn't likely to stop, benefiting risk assets and equities; Positive on DKS: Sporting-goods chain has been among the biggest beneficiaries of the retail sector shake-up-it has reconfigured stores to sell more fitness apparel and footwear, and added new merchandise; The SEC's track record this year on bribery cases is strong, and investors benefit from knowing what companies have FCPA violations. 

* Interview: Keith Trauner and Larry Pitkowsky of GoodHaven Capital Management look for solid but beaten-down companies and wait for the market to recognize their value and reprice them (picks: ABX, WPX, LUK, VZ). 

* Profile: George Papadoyannis of Ameriprise Financial is a big believer in municipal bonds, and is scaling back on growth-oriented investments in favor of less-volatile options. 

* Mutual Fund Quarterly: Some funds categorized as "sustainable" don't really fit into the category; ETFs comprise only a small part of the sustainable investing universe, but that could soon change; Big fund firms are competing with Vanguard on ETF pricing, potentially taking losses to win assets; "Closed-end municipal bond funds have soared recently, but income investors who missed out can still find some opportunity"; Chinese and Japanese markets got a boost because of a strong fourth quarter for stocks, while U.S. share outflows were the result of concerns about the presidential election. 

* Follow-Up: 1) Positive on Samsung Electronics: After a recent 40% gain, shares still look cheap despite problems with the Galaxy Note 7 smartphone, because the company maintains a dominant position in numerous sectors; 2) Cautious on ADSK: Shares are up 53% since September 2015, but the company's financials are a concern; much of the current optimism is already priced into shares, and investors should consider taking profits; 3) Some investors wonder if Bass Pro Shops is overpaying for CAB, whose retail stores are struggling and may have trouble generating the required cash flow to make the deal work. 

* European Trader: U.K. government bonds face bad news, because the pound's weakness is a sign that higher inflation will erode future coupon payments. 

* Asian Trader: Postal Savings Bank of China had a strong IPO, going public at more than book value, but as fears about China's massive debt recede, the shares are likely to gradually lose their premium. 

* Emerging Markets: This year's best-performing emerging-market mutual funds, including Brandes Emerging Markets Value fund, share at least one trait: betting on Brazil. Commodities: "Oil prices jumped in late September on news of an OPEC deal to reduce production, but the agreement comes with too many caveats to push prices much higher."

* Streetwise: Low-volatility stocks have been driven not just by the demand for safety, but also the reach for yield, but that demand is starting to wane, says JPM strategist Dubravko Lakos-Bujas.

>>> ECB's Draghi: growth in euro zone is continuing at a steady but moderate pac

ECB's Draghi: growth in euro zone is continuing at a steady but moderate pace; expect growth for the rest of the year to be similar to the previous quarter - IMF annual meeting 
- euro zone economic outlook has stabilized 
- there is no evidence that low inflation has become embedded in wage setting
- expect inflation in the euro zone will soon move decisively higher
- risks to growth are on the downside
- reiterates asset purchases will continue at least until March 2017