Source: Park Alpha – Sovereign Wealth Fund Institute

What is a hypermarket?

A hypermarket is like a big-box store. They focus on high volume and low margin sales. They have extremely large footprints. Examples are Wal-Mart Supercenters or France’s Carrefour.  Already popular in the occidental nations, our analysts see it spreading in other parts of the world.  At Park Alpha, we see a continued global trend of the development of more hypermarkets, especially in emerging economies.

Just recently, Norway GPFG published that they topped over 3 trillion kroner for first time. The Norwegian sovereign wealth fund is now $512 billion in assets. This is a huge milestone in the importance and growth of sovereign wealth funds. Oil based sovereign wealth funds still hold the lead over non-commodity based SWFs.

“The fund has grown faster and bigger than most people expected since getting its first inflow of capital in May 1996,” says Yngve Slyngstad, chief executive officer of Norges Bank Investment Management (NBIM), which manages the fund.

Read more about: Norway GPFG

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Basically, it is a process of choosing a set of portfolios that have the highest return for given levels of risk. Many institutional investors believe that designing the highest returning portfolio of assets cannot be done by human intuition alone.  The efficient points in the Return-Risk graph are called the Efficient Frontier.

Reasons for massive adoption

• Pushed by Academics – Quantitative in Nature (appears Scientific)
• Objective
• Process-Oriented
• Single Solution Outcome

Some Key Issues with MVO

1.  All inputted assumptions are based on historical data and are subjective.

Basically, it is garbage in, garbage out.  Inputs must be solidly tested for all types of economic and political environments.  There is tremendous instability in the MVO model, with regards to small changes in the input.  Historic asset class returns might not be repeated in the future.

2. Underestimate Risk

Standard deviation is the only measure of risk in this model.  Other types of risk must be accounted for; however, they are very difficult to model.  Many investors lost big, by not looking at tail risk.

Interested in learning more about our services and how we can help you achieve your goals, please contact us @ contact@parkalpha.com

Private equity real estate is not for everyone. Investors who need liquidity should begin with publicly traded instruments like REITs and CMBS. The advantages of public ownership are generally sourced from transparency and liquidity. Some of the cons of investing with REITs include being subject to the daily market fluctuations in the stock market; meaning the security price of the public REIT may not always reflect the underlying value its real estate assets. Investors in private equity real estate must have a long investment horizon, as lock up periods and return actualizations may take years. Investing in this asset class involves the ownership of real property assets, either on a direct basis or through a commingled investment vehicle. In addition, another feature of investing in the private markets is transaction data.

The value of private equity real estate is determined by periodic appraisals that consider the property’s net operating income and the physical condition of the asset, as well as a comparison (both quantitative and qualitative) to similar properties in the market.

Benefits

• Diversification
• Cash Flow
• Inflation Hedge
• Avoid Stock Market Risk (Non-Public REITS)
• Direct Ownership
• Expand efficient frontier

Risks

• Liquidity
• Volatile Returns
• Transparency
• Greater Idiosyncratic Risk
• Legal/Political/Operational (due to direct investment)

Late 2008, capital expenditures in the mining industry slowed down to preserve capital and wait for commodity prices to rebound. Mining exploration firms were in need of cash infusions for various reasons such as servicing debt to pay for past M&A transactions. However later in 2009, as the credit economy began to slowly thaw, a yearning demand from India, China, and other rapidly developing economies created the stage for more commodity consumption.

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