Sovereign-Wealth Funds Are a:
Executive Watch
777 by Anthony J. LoPinto
A lot of people think sovereign-wealth funds are here to stay. More than half (58%) chose that as a response to this week’s Quick Poll question. One-quarter of the poll respondents picked “Passing Fancy,” and a scant 17% said they were a “National-Security Threat.” Michael Frankel, CFO and partner with Los Angeles-based Rexford Industrial, thinks highly of Sovereign-Wealth Funds.
They’re here to stay, and to grow further. The first phase of this type of investment is with large sovereign entities like China and the Middle East seeking safe-havens and diversifications in the form of US treasuries or trophy assets in the form of real estate or corporate investments.
Phase two we’re staring to see right now: We’re looking at the professionalization of sovereign investing, which is characterized by more thoughtful portfolio investing and true asset management. We haven’t really begun, in my view, phase three: a more thorough targeting of a truly diverse, risk-adjusted set of investment opportunities. We’re still stuck somewhere between one and two.
In my view it’s not a passing fancy driven by a low dollar. The trend started when the dollar was at a premium in the world. Where it became most notable was in the mid 19880s when the Japanese were buying up all sort of real estate and assets in the US.
Chinese regulations are just starting to loosen up to allow pension-quality assets outside of China. That’s actually going to add to the trade surplus dollars that are currently being invested in the sovereign funds that China is deploying.
The sovereign funds have barely began to scratch the surface. About 7% of foreign investment in real estate is targeting industrial. But the reality is that any risk-adjusted portfolio that is well balanced and well thought through is going to have a large component of industrial. We’re actually seeing a lot of interest from sovereign funds in our business that focuses on value add industrial in markets like Southern California. They’re really just scratching the surface in terms of deploying capital.
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