Benno Klingenberg-Timm, Head of Global Sovereign Markets APAC spoke with the Sovereign Wealth Fund Institute (SWFI) on climate change and how sovereign wealth funds should invest through and beyond disruption. More
We jointly hosted this signature conference with global business school IMD at the UBS University in Singapore. This year, 40 senior-level executives from over 30 sovereign institutions took part.
Perspectives matter. Tune in to our insights.
The SIC is a private platform for sovereign investors to discuss megatrends that can influence their nation’s growth and development potential. We wanted to enable conversations from multiple perspectives – from thought leaders to practitioners and this is reflected in the speaker and content line-up.
Benno Klingenberg-Timm, UBS-AM Head of APAC Sovereign Clients
SWFs need a new investment framework as they are now in an evolutionary phase of slower asset growth and lower returns.
Dr Massimiliano Castelli, UBS-AM Head of Strategy, Global Sovereign Markets
IMD is the key content partner at SIC with Dr Arturo Bris, Professor of Finance and Director, IMD World Competitiveness Centre as the speaker. He led the sessions on country competitiveness and fintech and data.
Other notable speakers include Liew Tzu Mi, Fixed Income, Chief Investment Officer and Kevin Bong, Deputy Director, Economics and Investment Strategy from GIC.
SWFs need to diversify differently
We could well have passed the peak in globalisations and in the age of “slowbalisation”, Sovereign Wealth Funds (SWFs) cannot rely on traditional asset allocation approaches.
The gold standard for new frameworks should consider megatrends – “slowbalisation” being one, and apply new diversification concepts.”
Dr Castelli explained that diversifying along traditional global benchmarks is no longer optimal and SWFs should take a regionalized approach and add alternative asset classes to the mix. This means focusing on regions, narrowing in on countries and new sectors that are driving growth. Many of these new sectors are led by players in emerging markets as the region is increasingly at the forefront of technology and innovation.
“But the growth dynamics of each region and country are different and so the allocation mix for each region should differ too. In some regions, SWFs may want to allocate largely to private markets only and in others, overweight certain growth sectors."
Benno added that in the many conversations that UBS Asset Management has had with sovereign wealth funds, “we understand that some of these entities have already calibrated their strategic asset allocations towards emerging markets for years. They are putting more money to work in the region as it is home to many innovative and disruptive players. This trend will stay for a long-time to come.”
Climate change, another mega game-changer for SWFs
Climate change also has the potential to drastically shift the outlook for SWFs. While global demand for oil and gas continues to rise, governments are facing pressures to pass tougher legislation on carbon emissions.
This is an issue for many SWFs whose wealth is closely tied to oil and rely on oil revenues, said Dr Castelli. With climate change accelerating, they will have to consider reducing exposure to this sector. The recent decision of the SWF in Norway to reduce its allocation to fossil fuels illustrates a trend that could gain traction over the next few years.
Long-term investors also need to pay attention to talent management
Dr Bris said that while no one metric can signify whether a country will be successful in the future, one crucial indicator relates to talent management. Are countries doing enough to attract foreign talent and retain the human capital they have? Both long-term investors and government need to pay attention to this because these policies can help companies and countries grow.
Indicators like quality of life, legal systems, security, quality of the intellectual environment, salary levels across industries and sectors can inform investors how successful a country is going to be in attracting and retaining talent in the long-term, and ultimately the potential they have to keep growing.
Singapore, where the SIC was held, provides a very good example of a country which competes successfully in this respect.
Outlook for digital platform is not certain; successful investing requires team of multi-discipline professionals
In the session on fintech and data, Dr Bris said that we are living in a changing paradigm where digital giants have strong influence and drive stock market returns. These tech giants succeed as they are innovative and have disruptive business models.
While digital platforms have a strong outlook, their future is not certain. They could be disrupted by regulatory policies or the development of alternative business models.
Dr Castelli observed that SWFs are prominent investors in the technology sector. They invested about USD 13 billion in tech-equity investments in 2018 and this is more than two-folds the amount from 5 years ago1. To continue investing successfully, “they will need to engage professionals from multi-disciplines; it’s no longer about economists and investment analysts.”
Sovereign Investment Conference
The Sovereign Investment Conference (SIC) is jointly organized by UBS Asset Management and IMD, a leading business school. The week-long flagship program, now in its second edition is a private platform for senior-level executives from sovereign institutions.
This year, we brought together 40 senior-level executives from over 30 sovereign institutions across 15 countries. Two-thirds of the participants are from Asia Pacific with the rest from the Middle East, Central Asia, Europe and Latin America.
UBS Asset Management has a global coverage team dedicated to advising and working with global sovereign institutions. Besides the SIC, we also organised the Reserve Management Seminar in Switzerland and Investment Training Seminar in Chicago as focused platforms for sovereign investors.
The SIC was held at the UBS University Singapore from 25 to 29 March 2019. Singapore is a natural host nation for the SIC due to its highly-respected sovereign wealth entities as well as its geographic proximity to the majority of the world’s sovereign asset pools.
Perspectives matter. Tune in to our insights.
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