SWF Radar CPPInvestmentBoard

Global Pensions writes that, “Auckland International Airport and the Canada Pension Plan Investment Board have reached a settlement over the airport’s claim for expenses incurred in responding to the pension fund’s failed partial takeover bid.”

The National Business Review reports that, “The Canada Pension Plan Investment Board (CPPIB) is suing Auckland Airport (AIA) for expenses relating to CPPIB’s partial takeover offer.”

CPPIB appeared to fall victim to protectionist sentiment in New Zealand in its recent failed attempt to partially takeover Auckland Airport despite the pension fund’s safeguards against government interference, its public stance against the use of non-financial investment criteria, and the fact that its assets are not government assets.

Thomson Reuters writes that, “Japan’s Liberal Democratic Party is set to call for a 10 trillion yen sovereign wealth fund using public pension funds, the Nihon Keizai Shimbun financial daily reported on Wednesday.”

The article adds that the LDP’s proposal comes amid calls for Japan’s $1.44 trillion state-run Government Pension Investment Fund, the largest in the world, to seek higher returns.

Categorizing an investment vehicle set up to invest the assets of the Government Pension Investment Fund as an SWF adds more vagueness to the already vague term “sovereign wealth fund.”

The Government Pension Investment Fund is, according, for example, to an OECD working paper (PDF) released in January 2008, a social security reserve fund (SSRF), defined as a fund that is “set up as part of the overall social security system, where the inflows are mainly surpluses of employee and/or employer contributions over current payouts, as well as, in some cases, topup contributions from the government via fiscal transfers and other sources.”

According to the report, SSRFs live alongside sovereign pension reserve funds (SPRF), which are “established directly by the government (completely separated from the social security system), [with] financial inflows… mainly from direct fiscal transfers from the government,” as one of two sub-categories of public pension reserve fund (PPRF).

Since the definition of SSRFs, of which the Government Pension Investment fund is an example, contains reference to “mainly surpluses of employee and/or employer contributions over current payouts”, such funds can only at a stretch be considered to relate to sovereign wealth, unlike their SPRF siblings. The acceptance of the term “sovereign wealth fund” to describe a vehicle designed to invest the assets of such an SSRF would therefore suggest that the sovereign character of assets under management is not a necessary condition for the categorization of such an investment vehicle as an SWF.

Although this may seem academic, it suggests that the concerns raised by sovereign wealth funds are not concerns about sovereign wealth per se but are in essence concerns about something else, such perhaps as the (at least potential) political manipulability of funds that invest abroad. If this is the case and if the concerns have indeed been misunderstood, then the distinction in the context of sovereign wealth fund investment between SWFs (in the form of such funds as ADIA and CIC) and, say, public pension funds may come to be recognized as one without a substantial difference.

Vladimir Putin’s denial to Henry Paulson yesterday of the existence of a Russian SWF, while the National Wealth Fund is generally considered to be an SWF, suggests (since the National Wealth Fund has yet to invest abroad) that engaging in foreign investment may be considered a necessary condition for categorization as an SWF, while the sovereign character of managed funds may not.

The fact that SOEs have always been discussed in the context of SWFs (and that the DP World and CNOOC debacles kicked of the contemporary debate now considered to be a debate about sovereign wealth funds in the first place) suggests, in turn, that fund-like character is also not a necessary condition for categorization as an SWF. Note also that Gazprom and other Russian SOEs are also often mentioned in the context of sovereign wealth investment, as are Chinese banks and steel companies, among others.

And the clearest recent example of protectionism against a foreign fund is that of CPPIB’s failed attempt to acquire a 40 percent stake in Auckland Airport, which was scuttled by the New Zealand government for questionable reasons. Although CPPIB is often mistaken for a sovereign wealth fund, it in fact shares very little in common with SWFs, and certainly nothing substantial. Yet many of the concerns raised about CPPIB in the context of the potential New Zealand investment were, in essence, identical with those raised in the west about SWFs. Again this suggests that the entire debate may not, in essence, be about sovereign wealth funds or even necessarily about foreign state investment - or that it may at least evolve into a different debate.

The Globe and Mail reports that, “The CPP Investment Board deepened its management team Monday by bringing aboard Benita Warmbold as the new chief operation officer at the $123-billion fund.”

The Telegraph-Journal reports that, “The Canada Pension Plan fund manager expects to focus its investments on global markets over the coming years as it seeks to shelter itself from cyclical downturns at home and meet its 2020 benchmark value of $320-billion. … The fund is concentrating on commercial real estate across Europe and infrastructure projects in countries like Mexico and India, says David Denison, president and chief executive officer of the Canada Pension Plan Investment Board.”

The New Zealand Herald reports that, “The Government’s decision to block the Canada Pension Plan from buying a stake in Auckland Airport has not chilled international interest in New Zealand, Finance Minister Michael Cullen says.”

The Globe and Mail’s Steetwise Blog wrote Wednesday that, “With long time horizons and an increasingly sophisticated staff, the CPPIB is now moving against the crowd where it sees opportunities. In the fall, that meant buying high quality asset-backed securities at a time when many investors were dumping. Now, the CPPIB is taking advantage of banks that are desperately trying to avoid mark-to-market losses. Buying leveraged loans is a perfect strategy for the CPPIB, as the fund understands this market from both a debt and private equity point of view.”

The Globe and Mail reported Wednesday that, “The Canada Pension Plan Investment Board is taking a more sophisticated approach toward investing in the public and private debt markets, as it continues to diversify from the government bond holdings that once made up its entire portfolio.”

The Canadian Press reports that, “The Canada Pension Plan Investment Board [CPPIB] has opened an office in London [at 33 Cavendish Square] ‘to enable greater access to investment opportunities in the United Kingdom and Europe.’”

The Financial Times writes that, “The Canadian Pension Plan Investment Board on Wednesday opens its London office with its mantra that not all investors are alike and, among big public investors, it is best in class. Its message is coming at a time when public pension funds are increasingly concerned about being caught in the backlash against sovereign wealth funds as they compete with these huge pools of capital for the best investment opportunities. The Canadian pension fund, which has C$123bn ($124bn, £63bn) under management, wants to make clear just how different it is from sovereign wealth funds.”