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Ashby Monk, Ph.D., executive director of the Global Projects Center at Stanford University and a senior research associate at the University of Oxford, has been blogging about sovereign and pension funds since 2008. 

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Weekend Giant Reading: December 9 - 11, 2016

Weekend Giant Reading

Hi, everybody. It’s been a crazy few weeks down here on the Avenue of Giants. Apologies for the radio silence. Anyway, without further ado... Here now, the news!

- Emerging Managers: The whole financial services industry - and especially asset management - has a diversity problem. For example, less than 2% of hedge funds are owned by women, despite the fact that women-run hedge funds apparently outperform their male counterparts.You don’t have to be a libertarian to figure out that these biases against people of color and indeed women has commercial and financial consequences for institutional investors. It’s for this reason that I’ve been a fan of emerging manager programs... they are a mechanism for rolling back the inherent bias in the system to stop backing that same pattern fitting managers and start backing the best managers (full stop). So, kudos to MassPRIM for expanding its emerging manager program today.

- Scaling Impact: The global community of impact investors has crossed $35 billion in assets. And there was much rejoicing. Yaaay. In other words, all the impact capital in the world does not add up to a single, small sovereign fund. Boooo. To be candid, this is a nice accomplishment, but it’s also a reminder that people who want to solve big problems through investing would be well served to work within the system of icy veined capitalists than try to work against it.

- Political Performance: You may have noticed that the politics of American pension funds is turning nasty (see here). It’s hard to judge what this means in the short run for investors. What I do know, however, is that research shows pretty clearly that the more a public pension board is politicized, the worse its financial performance becomes. In the meantime, pass the popcorn.

- The Collaborative Model: A growing number of Giants appear to be working together. For example, Nigeria’s Sovereign Investment Authority and Morocco’s Ithmar Al Mawari are collaborating on construction projects. CDPQ is partnering with DP World to create a $5B platform that will focus on global ports and terminals. China’s CIC and France’s CDC are teaming up to invest in third-party markets of strategic interest to both countries. And Mubadala is looking at two big Agriculture deals in Russia via its partner RDIF. If you’re curious as to why all this is happening, you can read my new paper on the Collaborative Model. Enjoy!

- Fee Machine: A growing number of Giants are finally getting serious about their fees and costs. For example, MassPRIM disclosed its huge carried interest checks paid to PE GPs for the first time. CalSTRS is also owning up to true cost of external investment programs; $1.6B in fees last year alone. CalPERS also admitted it is paying insane fees to PE GPs even when returns are crappy. With all this transparency, here’s hopin’ we finally see some significant resources flowing inside public pension funds in order to hold private asset managers more accountable.

- They Might Be Giants: Saudi Arabia made a deposit of $27 billion into its revamped Public Investment Fund. Given the fund is apparently on its way to $2 trillion, this will be the first of many. With this in mind, the government is also staffing up its newly revamped sovereign fund.

- They Might Have Been Giants: The Ghana Stabilization Fund is joining Russia’s sovereign funds in that they are all running out of money.

- Taking The Long View: Sweden’s AP2 has now divested from 76 companies on climate grounds. That’s a lot.

- LP To GP Evolutions: It’s interesting to see so many sovereign funds RAISING new funds - for various niche projects - from their peers.

- Selfie: In which I argue that prize linked savings accounts are a replacement for predatory state lotteries.

Have a great weekend!