Gpis’ Performance and Practices Across a Wide Range of Investments As Well As Their Activities in the Digital Economy and Sustainable Investment
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BARINGS REAL ESTATE We’ve learned over the last 25 years that it takes experience and perspective to navigate through uncertain times. At Barings Real Estate, we harness the full breadth and depth of our $40+ billion real estate platform* to deliver our clients a more complete picture of the opportunities ahead, and the solutions designed to capitalize on them. Global Public Investors – central banks, sovereign funds and public pensions funds – are widening their radius ever further. The policies of 750 institutions with worldwide investible assets of $39.5tn have a profound effect on global markets. They are crucially important for growth prospects, the investment climate and capital markets. They will have a significant role in the post-pandemic global recovery. The 2020 annual edition, the seventh, surveys GPIs’ performance and practices across a wide range of investments as well as their activities in the digital economy and sustainable investment. 4 GPI 2020 OMFIF Research team Operations Danae Kyriakopoulou Sarah Holmes, Chief Operating Chief Economist & Director of Officer Research [email protected] [email protected] Adam Cotter, Director & Head of Asia Published by OMFIF Ltd Kat Usita [email protected] Official Monetary and Financial Deputy Head, Research Henry Wynter, Head of Strategic Institutions Forum [email protected] Partnerships [email protected] 30 Crown Place, London EC2A 4EB Bhavin Patel T: +44 (0)20 3008 5262 Patricia Haas Cleveland, President, Senior Economist & Head, Fintech F: +44 (0)20 7965 4489 US Operations Research [email protected] 20 McCallum Street, #19-01 Tokio [email protected] Marine Centre, Singapore, 069046 T: + 65 6823 8237 Pierre Ortlieb Economist [email protected] omfif.org Board @omfif.org Chris Papadopoullos Economist David Marsh, Chairman [email protected] Company Number: 7032533 John Orchard, Chief Executive Officer Brandon Chye Economist Phil Middleton, Deputy Chairman [email protected] Maggie Mills Jai Arya Production Mark Burgess Simon Hadley, Director, Production Advisory Council With a presence in London, Julie Levy-Abegnoli, Fergus McKeown, Subeditors Meghnad Desai, Chairman Singapore, Washington William Coningsby-Brown, Mark Sobel, US Chairman and New York, OMFIF is Assistant Production Editor Hani Kablawi, Deputy Chairman an independent forum for Frank Scheidig, Deputy Chairman central banking, economic Marketing policy and public investment James Fitzgerald, Marketing Manager Xiang Songzuo, Deputy Chairman [email protected] — a neutral platform for best Otaviano Canuto, Aslihan Gedik, practice in worldwide public- Stefan Berci, Communications Robert Johnson,William Keegan, Manager John Kornblum, Norman Lamont, private sector exchanges. [email protected] Kingsley Moghalu, Louis de For more information Commercial Montpellier, Fabrizio Saccomanni, Gary Smith, Niels Thygesen, Ted visit omfif.org or email Chris Ostrowski, Commercial Truman, Marsha Vande Berg. [email protected] Director [email protected] Ben Shenglin, Chair, OMFIF Edward Longhurst-Pierce, Director, Economists Network Acknowledgments Official Institutions & External Relations OMFIF thanks officials from [email protected] the co-operating countries Sofia Melis, Head of Client Illustrations by and cities for this publication, Relationships Eleanor [email protected] Shakespeare which will be joining us in @eshakespeare launch partnerships around Mingiyan Shalkhakov, Relationship the world. We are grateful to Manager many other associates and [email protected] colleagues for their assistance Shuen Lam, Commercial Partnership Manager and guidance. [email protected] © OMFIF Ltd 2020. The entire contents of this publication are protected by copyright. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, without the prior permission of the publisher. The views and opinions expressed by the authors and contributors to this publication are provided in the writers’ personal and professional capacities and represent their responsibility. The publication does not imply that their contributions represent the views or opinions of OMFIF and must neither be regarded as constituting advice on any matter, nor be interpreted as such. The reproduction of advertisements in this publication does not in any way imply endorsement by OMFIF of products or services referred to therein. While every care is taken to provide accurate information, the publisher cannot accept liability for any errors or omissions. No responsibility will be accepted for any loss occurred by any individual due to acting or not acting as a result of any content in this publication. On any specific matter reference should be made to an appropriate adviser. OMFIF.ORG WELCOME 5 ‘Thin line between success GPIs’ role in shaping policy is fraught with hazard, writes and failure’ David Marsh, chairman, OMFIF of policy. Governments are demonstrating presence and prowess to counter Covid-19. With their growing firepower, GPIs are in the public eye. But they cannot lose sight of parallel vulnerabilities. Central banks, through further shifts towards THE 2008 financial crisis thrust central banks, still more unconventional monetary policy, have sovereign funds and public pension funds into the greatly expanded balance sheets and represent limelight. Massive stabilisation efforts ensued, the mainspring of global recovery. However, if including central banking packages and bail-outs of the upturn is slower than expected, or if the virus stock market-quoted groups. 12 years later with the returns with fresh virulence, they will face vast rapid outbreak of still more pernicious economic and financial and reputational exposure. With this will social disturbance, state institutions are marshalling come a backlash from politicians claiming they an even greater display of force spreading well misused their independence and leverage. beyond the purely financial. Global Public Investor Sovereign funds have been ultra-active – both in 2020 covers all aspects of these institutions’ make- buttressing their own governments’ rescue measures up and performance. We focus on their fostering and through opportunistic investments in sectors of institutional resilience in the face of the biggest expected to profit from the turbulence. In some international crisis since the second world war. And senses against their better judgement, they are we multiply references to the need for economic making wagers on the future of the world economy and financial sustainability, a major theme over the from which they would normally shrink back. seven years of our annual series. Coming years will show whether these choices have The world could manifestly no longer proceed as been master strokes or miscalculations. it was developing last year, in apparent comfort but Public pension funds have been shoring up increasing precariousness. A year ago, in the GPI incomes and valuations – for workers, retirees and 2019 foreword, I wrote, ‘The much-heralded world investors a pivotal form of life support. But if their recession is nowhere in sight, but history teaches investment processes or governance frameworks that it may be just over the horizon.’ Now it has break down, stabilisation will go into reverse. For arrived, GPIs are no longer mere instruments. In all these institutions and the people and businesses many cases – in the absence of broader international they support, the threshold to fresh travail is strategies, occasioned by the US retreat from global low – and the line between success and failure is leadership – they have become source and bedrock agonisingly thin. 6 GPI 2020 CONTENTS 1 Forewords Macro environment 09: shaping GPI activities ‘Opportunities ahead for those willing to embrace them’ 25: Chapter 1 Gerry Grimstone, UK Department for International Trade A new world economy By Chris Papadopoullos ‘Intensified interlinkages, search for alignment’ 26: ‘When Covid-19 struck, governments Danae Kyriakopoulou, OMFIF introduced fiscal policy measures. Swift monetary policy action complemented this’ Sharon Donnery, Central Bank of Ireland 33: ‘This is a challenging environment for yield-seeking investors’ James Blair, Capital Group 35: Chapter 2 Evolving currency system By Pierre Ortlieb and Bhavin Patel 36: ‘Relationship between dollar rates and economic fundamentals evolving’ Dubravko Mihaljek, Bank for International Settlements, 42: ‘Towards a synthetic global currency’ Christian Pfister, deputy director general, directorate general statistics at the Banque de France. 44: ‘Gold’s long-term performance can help guide official sector investors’ Shaokai Fan, World Gold Council 46: ‘Facilitating access to foreign currency key to more stable monetary system’ Joe Hoefer, Barings Investment Institute 47: Chapter 3 Global flows Report findings By Chris Papadopoullos 48: ‘Covid-19 highlights importance of 10: Executive summary strong regulatory framework’ Isabelle Vaillant, European Banking Authority Weighing safety and risk 49: ‘A fully-fledged banking union requires institutional developments’ 12: Top 10 findings Margarita Delgado, Banco de España OMFIF.ORG 7 3 Focus on asset classes 83: New regulations 85: Chapter 6 Asset allocation survey By Danae Kyriakopoulou and Pierre Ortlieb 2 95: Chapter 7 Sovereign funds’ technology investments Frameworks for By Pierre Ortlieb and Brandon Chye