Thursday, September 14, 2017


What they want to say and what we want to hear? Many of us might have forgotten that Iceland faced a hard time when its banks went for toss and Norway SWF too the bet much before in these banks at the time of collapse. Norway’s shorting of Icelandic bonds particularly in anticipation of the weak ,over leveraged Icelandic financial meltdown lead an opportunity for SWF to hedge against an for a country that already which had significant exposure to that particular industry. By the way don’t forget George Soros too. In 1992 international investor George Soros famously “broke” the Bank of England by shorting more than US$10 billion worth of pounds, pocketing more than US$1 billion in the process and forcing the Bank of England to withdraw from the European exchange rate mechanism (ERM).

History repeats but the cleavers are the ones who identify the history and takes immense opportunity from the same. In 2008 recession the SWF took around billions of pledges mostly in advance through various financial instruments among those who were used to Claimed As Too BIG TO FAIL. The trend of taking opportunity is the key direction for understanding the long term repercussion of the act.The below data reflects when the SWF took exposure and how much information they carried for the collapse of 2008 financial collapse. This raises the eyebrow for finding the trend and understanding the pattern.

SWF lost million to when the invested between November 2007 to 2008 but the made many times of what they lost. The below stake holding details will make the subject more clear. Chaos theory says patterns needs to be followed which gives indication of the upcoming trends of events.

Identification of opportunity for SWF is clearly shows when on January 15th 2008 much before the Lehman Brothers collapse in September 15th 2008, the governments of Singapore, Kuwait and South Korea provided much of a $21 billion lifeline to Citigroup and Merrill Lynch, two banks that have lost fortunes in America's credit crisis. They invested and saved the banks and later on standing at 2017 please calculate the returns these SWF made from the stake they hold. Buy back of Shares was the Boon funded by QE. SWF In 2008, accounted for 28 percent of the deals, worth 75 percent of the total value ($96.2 billion).

Currently the world largest SWF Norways officially known as the Government Pension Fund of Norway,  which stands at $1 trillion has changed its strategy towards equity where it increased its equity exposure to 70% from 60% and cuts down on corporate bonds and only exposure towards government bonds. Further is will invest in dollar, pound and not yen as yen liquidity is a problem. Further might face problem of North Korea related problems later on. Brexit is an opportunity for the pound and hence its bet keeping the long term vision.

These changes indicates many aspect but as per my limited thought a short position on global equities and also buying at low levels leads to increase of asset allocation towards equities. a 2ndly government bond tends to be a safe bet when equities and economic warfare comes into game. Currently the SWF has about $80bn — was in corporate bonds. They will slowly liquidate and wait for the maturity and more over they will not take additional exposure.

The top 10 holdings of the fund, as of August 2017:
·         Apple
·         Nestle
·         Alphabet
·         Royal Dutch Shell
·         Microsoft
·         Novartis
·         Roche Holding
·         Amazon
·         HSBC
·         Johnson & Johnson
Crude as an asset class is no longer a viable multiplier of returns now hence equities are the best to play with. With some $6.5 trillion in assets, sovereign investors already account for 19 per cent of capital committed to private equity. By the end of 2016, 61 per cent of SWFs had allocations to private equity, a record high, and 63 per cent to real estate. When assessing maturity, NBIM said a set limit of no greater than 10 years would allow for more consistent returns across countries, increased stability and increased immunity to the impact of adjustments by non-price-sensitive players. Technological shifts and uncertain economic growth have leas SWF to think in this pattern.

Are we heading for a collapse may be since valuations and growth in prices gap are widening and hence the essence of reliability is weaning. Geo-political tension is another headache which can turn the wieners into losers.  Every economy of a country cannot grow simultaneously when ground realities says  gap is widening.  SWF change of pattern indicates silently many things which we need to read and understand .

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