Chinese and Korean Sovereign Wealth Funds Boost Global Equity Investments Through External Advisers; Engagement of Fundamental Managers Suggests SWFs Not Activists

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The dramatic increase in global equity investing by Chinese and South Korean sovereign wealth funds (SWFs) over the past two years has been mainly driven by hired external investment advisers, according to a research study just completed by LS Global Advisory Group, a leading global market intelligence and shareholder identification service provider. In-house managed equity portfolios have not increased significantly during the period, the study revealed.

The dramatic increase in global equity investing by Chinese and South Korean sovereign wealth funds (SWFs) over the past two years has been mainly driven by hired external investment advisers, according to a research study just completed by LS Global Advisory Group, a leading global market intelligence and shareholder identification service provider. In-house managed equity portfolios have not increased significantly during the period, the study revealed.

The SWFs, seeking to capture gains in developed and developing equity markets, are hiring specific types of investment advisers depending on the particular country they are investing in. For example, for investments in Japan, they are engaging long-established and fundamental asset managers including Nomura Asset Management, Goldman Sachs Asset Management and The Vanguard Group. Other major asset managers being used by Chinese and Korean SWFs include Morgan Stanley Investment Management, J.P. Morgan Asset Management, State Street Global Advisors and BlackRock Fund Advisors.

“The trend of hiring top-tier global asset managers underscores the increasing globalization of the Chinese and Korean funds in their equity investment activities,” said Lucas Scheer, president of LS Global.

Furthermore, said Scheer, “the engagement of large fundamental managers for global equity investments indicates the funds are focused on seeking superior investment returns and are currently not interested in shareholder activism.”

Big Increases into Japan

SWFs covered in the LS Global study – including China’s SAFE and China Investment Corp. (CIC), as well as Korea’s National Pension Service (NPS) and Korea Investment Corp. (KIC) – showed a combined 57% increase in total share ownership of Japanese companies in the six-month period ended March 31, 2011, based on market intelligence accumulated by LS Global. This data indicates that the funds’ external managers have been highly aggressive in their investment commitments over the past year.     

Who’s Advising Whom?

The LS Global study identifies key external investment advisers for the Chinese and Korean SWF investments into developed and emerging markets over the latest six-month period. These are:

Chinese SWFs

  •     SAFE (China’s State Administration of Foreign Exchange): Nomura Asset Management and Goldman Sachs Asset Management accounted for the largest portion of increased investments on behalf of SAFE. Additional SAFE accounts were externally managed by State Street Global Advisors, BlackRock Fund Advisors, and BlackRock Advisors UK.
  •     China Investment Management Co. (CIC): External managers include Wellington Management Company, Grantham Mayo, Van Otterloo & Co., The Vanguard Group and BlackRock Advisors UK.

South Korean SWFs

  •     Korea Investment Corporation (KIC): External advisers include State Street Global Advisors, JPMorgan Asset Management, Quantitative Management Associates, and Threadneedle Asset Management.
  •     Korean National Pension Service (NPS): External advisers include Aberdeen Asset Management, Acadian Asset Management, AllianceBernstein LP, Baillie Gifford & Co., Fisher Asset Management, Franklin Templeton Investments, and Morgan Stanley Investment Management.

Going Forward

Given their motivation to boost returns, LS Global Advisory Group’s proprietary market intelligence finds that Chinese and Korean SWFs are likely to continue to rapidly expand their investments overseas in both developed and developing markets.

In addition to Japan, the SWFs have invested heavily in many other major developed markets including the U.S., U.K. and France. There is also evidence that investments are being made into the emerging markets of Indonesia, Malaysia as well as Brazil, Russia and India markets in the “BRIC” countries.

“In total, we can look forward to a continued escalation of Chinese and Korean SWF investments in venues around the world, as the economies and markets continue to evolve and recover from the impacts of the financial crisis,” said Scheer.

About LS Global Advisory Group

LS Global Advisory Group is a leading provider of shareholder identification and market intelligence services on a global basis. This crucial information helps client companies to communicate more effectively with their current and prospective shareholders, as well as the investment community as a whole. Formed in 2006 by 20-year industry veteran Lucas Scheer, the firm has quickly become a leader in identifying institutional investors in corporate equities around the world. For assignments in many developed markets, LS Global typically identifies over 90% of the institutional ownership of a client company’s share capital – a track record that other industry firms find hard to duplicate. LS Global operates across all major industrial countries, and in addition to shareholder identification, it provides stock surveillance, institutional targeting, activist investor monitoring and consulting, and debt-holder identification services. For additional information about LS Global Advisory Group, please visit our website, http://www.LSGlobalAdvisory.com, or contact President Lucas Scheer at (212) 430-3782 or info(at)lsglobaladvisory(dot)com.

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Lewis Koflowitz
High Impact Marketing Communications
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