Sovereign Wealth Fund News and Performance

Bloomberg
Sovereign Wealth Funds From Asia Invest in Chesapeake Energy
June 21, 2010, 10:23 PM EDT
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By Shinhye Kang and Netty Ismail
June 22 (Bloomberg) -- Sovereign wealth funds from China, Singapore and South Korea and two private-equity firms agreed to invest $900 million in Chesapeake Energy Corp., the third- largest natural-gas producer in the U.S.
The investors bought the Oklahoma City-based gas company’s 5.75 percent convertible preferred stock on June 18, Chesapeake said yesterday in a statement, without giving details of the individual stakes. South Korea’s $30 billion sovereign wealth fund said yesterday it will spend $200 million.
Asian sovereign funds are seeking to diversify after losing money on bank stakes as stocks tumbled through the financial crisis. The funds are buying into a company that’s among owners of rights to U.S. shale-gas reserves in deposits including the Marcellus shale in New York, Pennsylvania and West Virginia, an area the Department of Energy estimates may contain enough to supply America’s needs for more than a decade.
“Given that global financial markets have been volatile in recent years, it seems prudent to diversify their asset base,” said David Cohen, an economist at Action Economics in Singapore. “Emerging economies have accumulated substantial international reserves in recent years and are looking for a way to diversify their holdings.”
Sovereign wealth funds around the world lost money on stocks and financial assets in 2008 as the MSCI World Index plunged 42 percent. Temasek Holdings Pte, Singapore’s state investment company, reported profit fell a record 66 percent in the 12 months to March 31, 2009, as a collapse in credit markets drove down the value of its stakes in Bank of America Corp. and Barclays Plc.
Shale Gas
“Temasek invested alongside other investors,” according to an e-mailed statement from the company today. The statement didn’t reveal the amount. Temasek, which bought $500 million of convertible preferred shares of Chesapeake in May, exercised its option to place the additional preferred stock with investors in Asia. The sale of the additional preferred stock was closed on June 18, according to Chesapeake’s statement.
Chesapeake said each share of preferred stock will be convertible at any time at $27 a share. The stock dropped 0.5 percent to close at $24.29 yesterday. Hopu Investment Management Co. and the Li Ka Shing Foundation in Canada are the private firms taking stakes.
Chesapeake has profited by selling drilling rights and gas reserves for $10.7 billion during the past 2 1/2 years, quadruple the $2.7 billion it paid for the assets. The gas producer is accelerating output of crude oil and natural-gas liquids while scaling back gas drilling in some areas, Chief Executive Officer Aubrey McClendon said in February.
Rising Prices
The company is finding higher-quality fuel at its U.S. shale-gas projects, making developing the prospects more attractive, it said in March. Shale-gas production is changing U.S. demand for gas as power generators switch away from coal to the cleaner-burning fuel, Senior Vice President Mike Stice said in a March 3 interview. Shale gas comes from layers of sedimentary rock difficult to tap with conventional technology.
State-run Chinese companies spent a record $32 billion last year acquiring resources overseas while South Korea, Asia’s fourth-largest oil importer, spent $5.18 billion to develop and buy energy assets.
Natural-gas prices will rise as demand for the cleaner- burning fuel increases in the long term and as increased regulation and costs following the BP Plc oil spill in the Gulf of Mexico reduce deepwater drilling, according to Korea Investment Corp.
Chesapeake will redeem $600 million of higher-priced debt for cash, the company said yesterday in a separate statement. It will buy back 6.375 percent of senior notes due in 2015 for $1,031.88 for each $1,000 of principal. The gas producer sold $1.7 billion of convertible preferred stock on May 18, saying it would use the proceeds to repay senior debt.
--With assistance from Bomi Lim in Seoul and Jim Polson in New York. Editors: John Viljoen, Malcolm Scott.
To contact the reporters on this story: Shinhye Kang in Seoul at skang24@bloomberg.net; Netty Ismail in Singapore nismail3@bloomberg.net.
To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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VIEW FROM HONG KONGJULY 11, 2010
Seatown at the Fore as Temasek Diversifies
By PETER STEIN

A new US$2.9 billion hedge fund backed by Singapore's Temasek Holdings Pte. Ltd. is starting to throw money around in global debt and equity markets, the latest outgrowth of the sovereign-wealth investor's push to diversify its US$135 billion portfolio.

Temasek has seeded the fund, Seatown Holdings, with four billion Singapore dollars, or about US$2.9 billion. Its co-chief executives, Charles Ong and Nasser Ahmad, are investing across a range of asset classes in global markets. At a media briefing last week, Simon Israel, Temasek's executive director, insisted that Seatown is a "new global investment company. It is not a hedge fund." But that's mostly semantics. Seatown's ability to buy high-yield debt and equities alike and to operate in the foreign-exchange market make it far more like a hedge fund than anything else.

It's already doing deals. Seatown—whose name is English for Temasek, an early name for Singapore in the language of Java—jumped in alongside its parent when the latter invested more than $600 million in convertible preferred shares of Chesapeake Energy Corp. of Oklahoma City. It also invested when Temasek bought shares in Chinese pork producer China Yurun Food Group Ltd. And the new fund firm is actively engaged in Asian debt markets, where its sheer size and ample dry powder make it one of the biggest investors in a region where other debt funds have less uninvested cash to play with. This plays to the strengths of Mr. Ahmad, a veteran of Credit Suisse Group and former hedge fund manager with a background in credit.


Bloomberg News
A Chesapeake Energy rig in north Texas. Seatown and parent Temasek invested in the firm.

Seatown is the latest in a string of investment vehicles Temasek has helped bring into being. It provided about US$800 million in capital to Hopu Investment Management Co., making it the US$2.5 billion China-focused private equity firm's largest investor. Hopu is run by Richard Ong, a former banker at Goldman Sachs Group Inc. and brother to Charles Ong of Seatown, and Fang Fenglei, chairman of Goldman's joint-venture securities firm in China. Charles was formerly Temasek's chief strategist and, before that, its chief investment officer.

Hopu has been heavily involved in a number of Temasek deals, including the ones for Chesapeake and China Yurun. When Bank of America Corp. sold down US$7.3 billion of shares in China Construction Bank Corp. early last year to boost its balance sheet, Hopu helped broker the deal and Temasek was one of the buyers.

Three years ago, Temasek was a backer behind a US$1 billion hedge fund, Broad Peak, started up by Hyder Ahmad, a former top banker at Goldman Sachs in Asia who had Temasek as one of his clients.

Temasek also wholly owns Fullerton Fund Management, which started out as an in-house money manager but now manages third-party assets invested in equities, fixed-income and funds of hedge funds.

Financial Plays

A list of Temasek-backed investment companies

Seatown Holdings: Wholly owned investment company with US$2.9 billion in capital set up to buy across a range of asset classes and geographies.
Hopu Investment Management China-focused private-equity firm in which Temasek is biggest investor.
Broad Peak $1 billion hedge fund set up with Temasek's backing
Fullerton Fund Management Wholly owned, Asia-focused fund firm managing third-party assets invested in equities, debt and hedge funds
WSJ reporting

Altogether, the fund firms handle only a fraction of Temasek's burgeoning portfolio. But they provide a way to diversify from the long-term, Asia-focused investments that dominate Temasek's holdings. These include controlling stakes in many of the city-states blue-chip giants, such as Singapore Airlines Ltd. and Neptune Orient Lines Ltd. Temasek is also one of the biggest foreign investors in China through its stakes in the top banks, and has a major presence in markets from India to Indonesia.

Temasek has benefited by being concentrated in the right place at the right time, over decades in which the Asian growth story has led to massive returns for long-term investors in the right companies. But it has also made mistakes. It invested billions into Merrill Lynch (later acquired by Bank of America Corp.) and Barclays PLC during the early stages of the financial crisis, and then pulled out in late 2008 and early 2009, losing US$5.5 billion in the process, people familiar with the matter have said, and missing out on a later rebound.

That experience prompted Temasek to re-emphasize its preference for placing money in Asia over developed Western markets. But it also underscored its weakness in investment decisions and strategies outside its comfort zone, something these new money managers—if they succeed in making good money—might remedy.

Mr. Israel said that while it's still early, Temasek is satisfied with the results of Seatown's investments. He said the aim is for Seatown to manage money for institutional investors in three to five years, with the possiblity of letting retail investors in possibly in eight to 10 years, after one or two market cycles have put the company to the test.

"Creating Seatown," Mr. Israel said last week, "gives us an opportunity create something quite different from Temasek."

Write to Peter Stein at peter.stein@wsj.com

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