Sovereign wealth funds - Sovereign wealth fund investment behaviour 9 Sovereign wealth funds and

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Transcript of Sovereign wealth funds - Sovereign wealth fund investment behaviour 9 Sovereign wealth funds and

  • Sovereign wealth funds

  • Editor:

    Dr. Javier Santiso

    Professor of Economics, ESADE Business School

    Vice President, ESADEgeo - Center for Global Economy and Geopolitics

  • Sovereign wealth funds 2012 Index

    1

    Index

    Foreword 3

    Introduction 5

    Sovereign wealth fund investment behaviour 9

    Sovereign wealth funds and Spain: (re)thinking opportunities 25

    Latin American sovereign wealth funds 51

    Sunken treasure: Brazil, deepwater oil, and Brazil’s sovereign wealth fund 65

    Principal factors justifying the existence of Chile’s sovereign wealth funds 77

    Africa and sovereign wealth funds 87

    Interview with Fabio Scacciavillani, Chief Economist, Oman Investment Fund 97

    Appendix. ESADEgeo Ranking - Sovereign wealth funds 2012 101

  • Foreword

    Sovereign wealth funds 2012 Foreword

    3

  • Sovereign wealth funds 2012 Foreword 4

    1. Foreword

    1. ForEworD

    The global economy is going through a period of major

    transformation. The traditional centre/periphery model is not up

    to the job of expressing the complexity of events. The emerging

    economies are growing strongly, while the European and US

    economies are stagnating.

    Many of the imbalances currently seen in the global economy

    lead to the accumulation of reserves in economies that control

    large parts of the world’s natural resources or that have successful

    economic models based on exports. Thus the Middle East, Latin

    America and Southeast Asia - as well as China – are currently

    holding the liquidity that Western economies so badly need.

    One emblematic manifestation of the economic transformation

    we are going through is the rise of sovereign wealth funds - huge

    accumulations of capital, now totalling close to $5 trillion, that build

    up in the surplus regions and are spreading all around the globe.

    Additionally, we are seeing a “me too” effect in regions such as Latin

    America and Africa, as these regions seek better ways to manage

    their abundant resources.

    Recognising the role played by these new elements of the

    international economy, we have produced the first Spanish

    language report on sovereign wealth funds. In a collaborative effort

    between the public and private sectors and academia, INVEST IN

    SPAIN (ICEX), KPMG and ESADE Business School came together to

    carry out this highly topical project.

    This report will look at the strategies employed by these funds, the

    investment decisions taken, the alliances they form with each other

    to operate in other emerging markets, and their industrial joint

    ventures in Western countries.

    While the main focus is on the funds’ actions in Spain, the 2012

    Sovereign Wealth Funds report also looks at trends in these global

    players’ actions and considers their impact on other regions,

    particularly emerging ones such as Latin America and Africa.

    Moreover, the case studies on Chile and Brazil will show us that

    some examples of “best practices” as applied by institutions

    worldwide come from these emerging countries too (Chile is an

    OECD member).

    Javier Solana

    President, ESADEgeo

    Jaime García-Legaz

    Secretary of State for Trade

    John Scott

    President, KPMG España

  • Sovereign wealth funds 2012 Introduction

    5

    Introduction

    Javier Santiso

    Professor of Economics, ESADE Business School

    Vice President, ESADEgeo - Center for Global Economy and Geopolitics

  • Sovereign wealth funds 2012 Introduction 6

    2. Introduction

    2. IntroDuctIon

    This 2012 Sovereign Wealth Funds report is the first produced by

    ESADEgeo with the support of KPMG and INVEST IN SPAIN, now part

    of ICEX. We would like to begin by thanking both institutions for

    their support in bringing about this first annual report on sovereign

    wealth funds. We also wish to express our very special thanks

    to Elena Pisonero, at the time with KPMG and now president of

    Hispasat, without whose enthusiasm and vision this report would

    not have come to fruition.

    This report is not a one-off undertaking. It forms part of a series

    of activities promoted by ESADEgeo over the past two years. A

    series of ESADEgeo Globalization Labs were held – lectures on

    emerging markets focusing on sovereign wealth funds and emerging

    countries with institutions of this type. On 30 May 2011 a Lab1 was

    held on sovereign wealth funds with Victoria Barbary, at the time

    with Monitor Group, London. On 7 February 2012 we welcomed

    Christopher Balding of the Peking University HSBC Business School,

    Shenzhen, China, who presented his latest book2. Both collaborated

    on the report and are associated with ESADEgeo as research fellows.

    The report also draws on field work carried out in Colombia and

    Chile. In mid-2011 we were in Colombia advising Finance Minister

    Juan Carlos Echeverry, together with Harvard professor and former

    Chilean Finance Minister Andrés Velasco, on setting up a sovereign

    wealth fund for Colombia, which was subsequently done later that

    year. We were also in Chile, towards the end of 2011, for the Latin

    American Economic Association (LACEA) conference, in which we

    held a session3 on sovereign wealth funds together with Chilean

    Finance Minister Felipe Larraín and Ignacio Briones, who is currently

    responsible for the Chilean sovereign wealth funds and also

    collaborated on this report.

    This “private” initiative, undertaken as a result of many

    conversations between ESADE and KPMG, received crucial “public”

    support from INVEST IN SPAIN. The common ground between

    the public and private spheres in terms of the project’s ultimate

    objectives, the need for a detailed study of these international

    players, and the specific nature of the content of the report,

    were agreed on by both sides. Without their vision, initiative and

    financing, this project would not have been possible.

    The structure of the report is as follows: after this introduction,

    Victoria Barbary addresses the current world situation of and trends

    in sovereign wealth funds; after that Javier Santiso focuses on the

    impact of these funds and the opportunities they present in Spain

    and Latin America. This is followed by two case studies: one on

    the Brazilian example, by Christopher Balding and Ellen Campbell,

    and another on the Chilean one, by Ignacio Briones and Francisco

    Vergara. Lastly Javier Capapé considers the novelty that these funds

    represent on the African continent. It is also included an interview

    with Favio Scacciavillani, Chief Economist of the Oman Investment

    Fund.

    Several conclusions can be drawn from the study:

    • The rise of sovereign wealth funds now applies to all emerging

    regions, not just Asia and the Middle East, but Africa and Latin

    America too. There are currently more than 70 funds of this type

    in operation, with total assets of close to $5 trillion.

    • In the period 2010-2012 there has been a steady increase in

    sovereign wealth funds’ South-South activity. In particular we

    have seen Arab and Asian funds investing in Latin America. Some

    of these transactions passed through Spain, via subsidiaries

    of Spanish multinationals established in the region, such as

    Iberdrola and Santander.

    • In this way Spain also popped up on the sovereign wealth funds’

    radar screens, partly as a result of its multinationals’ involvement

    in Latin America. But there were also some transactions linked to

    the Spanish market, the most prominent being the purchase of

    CEPSA from IPIC.

    • The rise of sovereign wealth funds represents a financial

    opportunity, but also an industrial opportunity for Spain. This

    can be seen from the first cooperation agreements between the

    Mubadala fund and Spanish companies such as Sener, Abengoa

    and Indra.

    • However, it could promote a more systematic strategy of

    establishing relations with sovereign wealth funds in both

    the Middle East and Asia, and also with those of Africa and

    Latin America, seeking to have them establish their European

    headquarters here, and carrying out actions via business schools,

    football clubs or Spanish government cooperation.

    1 Available at http://www.esadegeo.com/globalisation-lab/index/page1/1. Victoria Barbary is currently Director of the Sovereign Wealth Center at Euromoney Institutional Investor and Researcher at the Sovereign Investment Lab, Bocconi University. 2 Sovereign Wealth Funds: the New Intersection of Money and Politics, Oxford University Press, 2012: http://www.esade.edu/web/esp/about-esade/today/news/viewelement/219441/1/el-economista- christopher-balding-detalla-los-desafios-que-afrontan-los-funds-soberanos-de-inversion-en-una- conferencia-de-esadegeo. 3 http://www.uai.cl/facultades-y-carreras/escuela-de-gobierno/actividades/2011/sovereign-strategic- fu