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Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
Gaim Presentation by Drosten Fisher of Monitor Group   November 16, 2008
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Gaim Presentation by Drosten Fisher of Monitor Group November 16, 2008

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Presentation on trends on Sovereign Wealth Fund investment to the GAIM conference in Dubai, by Drosten Fisher of Monitor Group

Presentation on trends on Sovereign Wealth Fund investment to the GAIM conference in Dubai, by Drosten Fisher of Monitor Group

Published in: Economy & Finance, Business
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  • 1. Assessing the Risks ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 1
  • 2. Contents Assessing the Risks  Overview of SWF Landscape  Methodology of Study  SWF Behavior: The Evidence of Public Transactions (2000-2008q1)  Recent SWF Behavior: 2008q1 vs. 2008q2  Implications for the Future  Q&A ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 2
  • 3. SWF Establishment: the First Trends Assessing the Risks There were three major waves of SWF formation, in the 1970s, the 1980s and the 1990s. The older SWFs, such as KIA and ADIA, tend to be more conservative in their investment approach Source: Deutsche Bank; Standard Chartered ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 3
  • 4. The Current Wave of SWF Formation Assessing the Risks However, about half of all existing SWFs — 18 — were formed in the fourth wave 2000–2007. Newer SWFs, such as Istithmar, Mubadala, and DIFC, tend towards a more aggressive investment approach. Source: Deutsche Bank; Standard Chartered ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 4
  • 5. The Emergence of Sovereign Wealth Funds Assessing the Risks Driven by high commodity prices, and favorable balance of trade, foreign exchange reserves are high in many emerging countries. Many countries with high foreign reserves choose to set up Sovereign Wealth Funds (SWFs). Foreign Reserves 1996 Foreign Reserves in USD Bn (2007) (USD 1.5 Trillion)  China 1,528  Russia 464  India 280  Taiwan 272  South Korea 262  Brazil 179  Singapore 168 Foreign Reserves 2006  Hong Kong 153 (USD 4.2 Trillion)  Malaysia 101  Mexico 87  Thailand 83  Industrial countries  Turkey 72  Asia  Poland 63  Latin America  Indonesia 55  CEE  Saudi Arabia 34  Middle East  Egypt 31 0 500 1,000 1,500 2,000 Source: The Economist, February 2007; Deutsche Bank ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 5
  • 6. Size of Sovereign Wealth Funds Assessing the Risks As a group, SWFs are relatively small compared to other global asset classes, but individual SWFs are significant players. SWFs are emerging as significant players in the global financial systems, both as investors and as providers of liquidity. Global Asset Classes in Assets Managed by Financial USD Trillions (2005) Institutions in USD Billions (2005)  Bank Assets 64  Barclays Global Investors 1,813  State Global Investors 1,749  World GDP 45  Fidelity Investments 1,635  Stock Market Cap 42  ADIA 875 Private Debt Securities 36  GIC 330  Kuwait Investment Authority 250 Public Debt Securities 23  CALPERS 250  Investment Funds 21  China Investment Company 200  Temasek 108  Pension Funds 18  Carlyle Group 80 Insurance Companies 16  JPM Asset Management 33  Reserves ex Gold 4  Goldman Asset Management 33  KKR 31  SWFs 3  Bridgewater Associates 30  Hedge Funds 1  Istithmar 8 0 25 50 75 0 500 1,000 1,500 2,000 2,500 Source: Citibank; Standard Chartered; Deutsche Bank ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 6
  • 7. Geographical Spread of SWFs Assessing the Risks Today, SWFs are estimated to hold up to $3 trillion in total assets, with the Middle East and East Asia funds having 80 per cent by dollar value. North and South America ($90 bn) Europe ($354 bn) Russia and Central Asia ($147 bn) Fund Country Size Fund Country Size Fund Country Size Alaska Permanent Government Pension Fund Stabilization Fund Russia 127 U.S. 40 Norway 322 Reserve Fund — Global National Pensions Reserve Kazakhstan National Fund Kazakhstan 18 Alberta Heritage Fund Canada 17 Ireland 29 Fund New Mexico State State Oil Fund Azerbaijan 1.5 U.S. 15 Government Petroleum Investment Office Norway 2.6 Insurance Fund Economic and Social Chile 6 Stabilization Fund Asia and the Pacific ($927 bn) Permanent Wyoming Middle East and North Africa ($1,571 bn) U.S. 3.2 Fund Country Size Mineral Trust Fund Fund Country Size Investment Fund for Government of Singapore Venezuela 0.8 Singapore 330 Stabilization Abu Dhabi Investment Investment Corporation (GIC) Abu Dhabi 875 Authority China Investment Company China 200 Pension Reserves Fund Chile 0.6 Various Funds Saudi Arabia 300 Hong Kong Monetary Authority China 140 Investment Portfolio Kuwait Investment Authority Kuwait 250 Temasek Holdings Singapore 108 Reserve Fund Libya 50 Australian Government Future Fund Australia 50 Sub-Saharan Africa ($16 bn) Qatar Investment Authority Qatar 40 Brunei Investment Agency Brunei 35 Fund Country Size Korean Investment Corp Korea 20 Excess Crude Account Nigeria 11 Reserve Fund Algeria 25 Khazanah Nasional BHD Malaysia 18 Pula Fund Botswana 4.7 Foreign Exchange Fund Iran 15 Taiwan National Stabilization Fund Taiwan 15 Poverty Action Fund Uganda 0.4 Istithmar Dubai 12 New New Zealand Superannuation Fund 10 Zealand National Fund for Mubadala Abu Dhabi 10 Mauritania n/a Timor Leste Petroleum Fund East Timor 1.2 Hydrocarbon Reserves General Stabilization Fund Oman 8.2 Mineral Resources Stabilization Reserve Fund for Oil Angola n/a PNG 0.2 DIFC Dubai n/a Fund Source: Deutsche Bank; Standard Chartered ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 7
  • 8. There Are Six Major Constituencies Affected by the Rise of SWFs Assessing the Risks Recipient Country Governments Multilateral Sovereign Regulatory and Government Oversight Owners Institutions SWFs Companies Other Considering Financial SWF Institutions Investments ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 8
  • 9. Constituency Interests and Concerns Assessing the Risks Interests  Welcome responsible foreign investors Interests  Protect vital economic and national security assets Interests  Capture benefits of this form of  Ensure reciprocity in trade, investing  Maintain free flow of capital globally investing (diversification, higher returns,  Preserve level playing field for all Concerns flexibility) investors  Monitoring SWFs owned by unfriendly governments  Increase long-term national wealth  Preserve systemic stability  Limiting potential for nonfinancial behaviors  Increase influence in global financial Concerns  Fearing SWFs may be Trojan horses affairs  Monitoring funds that are not  Monitoring funds that are not transparent  Increase clout in global financial system transparent  In OECD countries, fearing potential loss of economic and Concerns  Limiting potential for nonfinancial political power  Avoiding protectionist backlash that behaviors might hurt broader trade interests  Guarding against corruption  Protecting against poor risk management Interests Interests  Gain access to foreign sources of  Enact desire to work with SWFs as capital partners, co-investors, clients  Welcome long-term passive investors  Maintain open access to all SWFs  Gain access to opportunities in new  Maintain access to opportunities in geographies new geographies Concerns Concerns Interests  Avoiding potential PR firestorms  Fearing that SWFs will have unfair  Preserve equal access to opportunities and talent worldwide  Preserving freedom to operate in advantages (lower cost of capital, privileged access to information and  Achieve and sustain highest level of professionalism certain countries or sectors deal flow)  Preserve autonomy  Minimizing foreign political interference  Worrying about effect on market  Maintain low profile in decision making dynamics (asset pricing, risk Concerns premiums)  Avoiding regulatory barriers, uneven treatment relative to other asset classes  Avoiding political firestorms when investing abroad ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 9
  • 10. Contents Assessing the Risks  Overview of SWF Landscape  Methodology of Study  SWF Behavior: The Evidence of Public Transactions (2000-2008q1)  Recent SWF Behavior: 2008q1 vs. 2008q2  Implications for the Future  Q&A ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 10
  • 11. What Is a Sovereign Wealth Fund? Assessing the Risks SWFs are part of a range of government investment vehicles. We used three criteria to define SWFs: 1.) owned by a sovereign government, 2.) managed separately from official foreign currency reserves of the monetary authority, and 3.) invest in a portfolio of asset classes including foreign assets Sovereign Funds Official Reserves / Pension Funds Domestic Sovereign Wealth State Owned Central Bank Sovereign Funds Funds Enterprises External assets for Investment Investment Investment Companies where directly financing vehicles to meet vehicles to vehicles funded by the state has international government’s encourage foreign exchange significant control payment future pension domestic economic assets May make imbalances obligations development Managed investments in Highly liquid, often Funded and Funded and separately from foreign assets OECD government denominated in denominated in official reserves bonds local currency local currency Typically have a higher tolerance for EXAMPLES risk Federal Reserve Government Pension Khazanah Nasional ADIA, Mubadala CNOOC (China) (U.S.) Fund (Norway) (Malaysia) (Abu Dhabi) Gazprom (Russia) Bank of England (UK) GIC (Singapore) Temasek, GIC SABIC (Saudi Arabia) SAMA (Saudi Arabia) (Singapore) Istithmar, DIFC (Dubai) CIC (China) SAMA (Saudi Arabia) Source: Robert Kimmitt, Public Footprints in Private Markets, Foreign Affairs, January / February 2008 ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 11
  • 12. Monitor SWF Transaction Database: Methodology Assessing the Risks Subscription databases, press Publicly available sources articles, websites of of SWF activity funds, and recipient companies Limited transparency and Data assessment spotty reporting Focus on direct investment in equities and real estate 1,181 deals, 25 funds 1975–Q1 2008 Data collected Funds not meeting our SWFs and definition recent deals Deals before 2000 Data checked and verified 17 funds, 785 deals $250 bn investment Final Dataset ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 12
  • 13. Funds Used in the Monitor Database Assessing the Risks Monitor’s SWF Transaction Database includes 17 funds for which we found public deal information Year of Assets Under Management Transactions in Monitor Country Fund Name Founding (USD Bn) Bn) Database Singapore Temasek Holdings 1974 108 393 Malaysia Khazanah National BHD 1993 18 76 Singapore Government of Singapore Investment Corporation 1981 330 74 UAE Istithmar 2003 12 63 Libya Libyan Investment Authority N/A 50 45 UAE Mubadala Development Company 2002 10 34 Qatar Qatar Investment Authority 2005 40 22 UAE Abu Dhabi Investment Authority 1976 875 16 Kuwait Kuwait Investment Authority 1953 250 13 Brunei Brunei Investment Agency 1983 35 12 UAE Dubai International Financial Centre Investments 2006 N/A 11 China China Investment Company Limited 2007 200 9 New Zealand New Zealand Superannuation Fund 2003 10 8 Ireland National Pensions Reserve Fund 2001 29 5 Iran Foreign Exchange Reserve Fund 2000 15 2 Hong Kong Hong Kong Monetary Authority Exchange Fund N/A N/A 1 Azerbaijan State Oil Fund 1999 1.5 1 Source: Truman, “SWFs: The Need for Greater Transparency and Accountability”, Peterson Institute, August 2007 ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 13
  • 14. Contents Assessing the Risks  Overview of SWF Landscape  Methodology of Study  SWF Behavior: The Evidence of Public Transactions (2000-2008q1)  Recent SWF Behavior: 2008q1 vs. 2008q2  Implications for the Future  Q&A ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 14
  • 15. Recent SWF Investments by Year Assessing the Risks Since 2000, there has been a marked increase in SWF direct investment in equities and real estate. SWF Equity Transactions by Number and Volume Since 2000 160 Number 146 Value ($Bn) 137 129 120 90 92 85 85 80 63 60 53 49 47 40 28 4 6 8 3 3 0 2000 2001 2002 2003 2004 2005 2006 2007 2008  (H1) Note: Publicly available data for SWF equity deals Source: Monitor SWF Transaction Database ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 15
  • 16. SWF Investment by Area Assessing the Risks Since 2000, some two thirds of SWF investment by value has been in the OECD. However, two thirds of the deals by number were in emerging markets. Number of Deals by Region Value of Deals by Region (785 deals) ($250 Bn) BRIC BRIC 14% 19% OECD 31%  Non-OECD (excluding BRIC) OECD Non-OECD  25% 61%  (excluding BRIC) 50%  Note: Publicly available data for SWF equity deals 2000-Q1 2008 Source: Monitor SWF Transaction Database ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 16
  • 17. Investment Flows: Middle East and North Africa (MENA) Assessing the Risks Since 2000, funds based in MENA have invested $100 billion in 205 deals. $73 billion has gone to North America and Europe, but this accounted for fewer than half the deals. Note: Publicly available data for MENA SWF equity deals 2000-Q1 2008 Source: Monitor SWF Transaction Database ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 17
  • 18. Investment Flows: Asia-Pacific Assessing the Risks Since 2000, Asian SWFs invested $150 billion in 573 deals. These invest more heavily in their own region; half of the total investment by value and some 80% of deals by number took place in Asia. Note: Publicly available data for Asia-Pacific SWF equity deals 2000-Q1 2008 Source: Monitor SWF Transaction Database ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 18
  • 19. Domestic / In-Region / Out-of-Region Assessing the Risks Number % % In- In- % Out-of- Out- of- Fund Number of Deals by Region of Deals Domestic Region Region 2000–Q1 2008 Temasek Holdings 393 43% 45% 12% (785 deals) Khazanah Nasional Bhd 76 79% 20% 1% Government of Singapore Investment 74 1% 61% 38% Corporation (GIC) Out-of-region Domestic 29%  35%  Istithmar 63 16% 6% 78% Libyan Investment Authority 45 4% 40% 56% Mubadala Development Company 34 29% 18% 53% In-region 36% Qatar Investment Authority (QIA) 22 ─ 23% 77% Abu Dhabi Investment Authority (ADIA) 16 19% 13% 69% Kuwait Investment Authority (KIA) 13 15% 38% 46% Brunei Investment Agency (BIA) 12 33% 25% 42% Dubai International Financial Centre 11 18% ─ 82% China Investment Co. Ltd. 9 22% 22% 56% Note: Source: Monitor SWF Transaction Database ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 19
  • 20. SWF Investment by Sector Assessing the Risks By number of deals, SWFs invest across sectors, including financial services, real estate, industrials, consumer and IT. However, by value, almost half the deals are in financial services, which reflects atypical intensity of investment in that sector during the sub-prime mortgage crisis during 2007 and early 2008. Number of Deals by Sector Value of Deals by Sector (785 deals) ($250 Bn) Transport Other 4% 3% Healthcare Other Healthcare 2% 8% 4% Telecom Telecom 2% 6%  Financials 22% IT Energy   1%  Energy 11% 8%   Financials Consumer 46% IT  Real Estate 3% Industrials   10% 18%  8%  Consumer  Real Estate Industrials  19% 10%  15%  Note: Publicly available data for SWF equity deals 2000-Q1 2008 Source: Monitor SWF Transaction Database ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 20
  • 21. SWF Investment: Analyzing Ownership and Control Assessing the Risks Contrary to popular opinion, SWFs do take controlling stakes, however they rarely do so in OECD markets. Stake Data by Sector and Geography, 2000–Q1 2008 100% 3% Controlling Stake in 8% quot;Sensitivequot; Sectors - OECD 8%  90% 11% Controlling Stake in Non-Sensitive Sector - OECD 80% 10% Controlling Stake - Non-OECD 70% 39% 60% 50% 40% 71% Not a Controlling Stake 30% 50% 20% 10% 0% Number of Deals Value of Deals Notes: Sensitive sectors include Energy & Utilities, Financials, Information Technology, Infrastructure and Government, Telecom, and Transportation & Aerospace Source: Monitor SWF Transaction Database ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 21
  • 22. Summary of Findings on Investment Behavior of SWFs Assessing the Risks SWFs invest heavily in domestic and emerging markets. A majority of SWF investments by value occur in 1 OECD markets, although the proportion is magnified by recent large investments during the credit crunch of 2007–2008. More than half of all transactions by number have occurred in domestic and emerging markets. Recent SWF investments in U.S. and European financial services firms are atypical and opportunistic, 2 reflecting the credit crunch of 2007–2008. Most SWF investments have occurred in financial services, real estate, and industrial companies, with most publicity focused on financial services. Controlling for the effects of the recent credit crunch, the apparent appetite for investment in this sector drops markedly, though it remains significant. SWFs are willing to take controlling stakes in companies. In contrast to prevailing views, since 2000, 3 SWFs have acquired controlling stakes in half of their transactions for which stake data are available. By far most of these deals occurred in emerging markets and in sectors not generally deemed politically sensitive. SWFs are taking more financial risk with their investments. Most SWFs are adjusting their portfolios to 4 combine conservative and relatively liquid asset classes, such as government bonds, with higher-risk, illiquid assets such as equities, real estate, and alternative instruments. SWFs do not appear to be investing for political motives. Some funds are making strategic investments to 5 hasten economic development in their home country, but they do not appear to be active in ways that threaten the economic or national security of foreign countries where they invest. ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 22
  • 23. Contents Assessing the Risks  Overview of SWF Landscape  Methodology of Study  SWF Behavior: The Evidence of Public Transactions (2000-2008q1)  Recent SWF Behavior: 2008q1 vs. 2008q2  Implications for the Future  Q&A ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 23
  • 24. Recent SWF Behavior: Q2 2008 vs. Q1, by Target Sector Assessing the Risks In Q2 of 2008 SWFs investing $26.5 billion in public equity deals, compared to $58.3 billion in Q1. Of this total value in Q2, half was invested in real estate, while significantly less went into financial services Value of SWF Investments Q1 and Q2 2008 by Target Sector 70 Infrastructure Services 60 58.3 Technology 2.1 2.2 Healthcare 50 Transportation 9.5  and Aerospace Telecom 40 $ Bn Consumer Real Estate 30 26.5  Industrials 1.6 Energy & Utilities 43.4 20 Financials 13.7 10 2.5 3.2 4.0 0  Q1 2008 Q2 2008 Note: Publicly available data for SWF equity deals Q2 2008 Source: Monitor SWF Transaction Database ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 24
  • 25. Recent SWF Behavior: Q2 2008 vs. Q1, by Target Region Assessing the Risks By geographic region, SWFs continued to invest actively in emerging markets (over half of the Q2 total), while dramatically reducing their investment in North America Value of SWF Investments Q1 and Q2 2008 by Target Region 70 MENA Sub-Saharan Africa 60 58.4 Multiple Regions 11.1 Europe 50 (including Russia) North America Asia Pacific 40 $ Bn 23.1 30 26.4 20 11.1 2.0 24.2 10 8.0 0.9 4.4 0  Q1 2008 Q2 2008 Note: Publicly available data for SWF equity deals Q2 2008 Source: Monitor SWF Transaction Database ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 25
  • 26. Q2 Highlights Assessing the Risks In the second quarter of 2008, funds in the Monitor SWF Transaction Database executed 1 43 deals totaling $26.5 billion. In contrast, those funds executed 42 deals totaling $58.3 billion during the previous quarter (Q1 2008). Half of the deals by value in Q2 were in real estate. Real Estate had the largest number of 2 deals (12) and the highest investment ($13.7 billion) in Q2 2008. During Q2 2008, investment shifted away from financial services. SWFs carried out 10 3 deals and invested $4 billion in the financial services sector during Q2 2008. In the previous quarter (Q1 2008), funds carried out 13 deals totaling $43.4 billion. SWFs continued to invest actively in emerging markets. In Q2 2008, over half of the deals 4 and funds invested were in emerging markets. SWFs carried out 26 deals and invested $15 billion in BRIC and other non-OECD countries. Investment in North America dropped dramatically. In Q2 2008, 4 deals totaling less than 5 $1 billion were received by North America. In contrast, this region received 7 deals totaling $23 billion during the previous quarter (Q1 2008). ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 26
  • 27. Contents Assessing the Risks  Overview of SWF Landscape  Methodology of Study  SWF Behavior: The Evidence of Public Transactions (2000-2008q1)  Recent SWF Behavior: 2008q1 vs. 2008q2  Implications for the Future  Q&A ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 27
  • 28. Implications for Key Constituencies Assessing the Risks  Treat SWFs on equal terms to other foreign investors  Assess potential risks on the basis of clear, transparent criteria  Increase scrutiny and review for transactions in sectors that have national security implications  Ensure that changes to regulatory frameworks preserve the benefits SWFs’ offer and avoid penalising them  Treat SWFs like other investors and Recipient  Invest in a way that encourages watch closely for signs of inappropriate Country development of domestic industries Governments influence of sovereign government leaders  Develop a track record of investment behavior that meets internationally  Develop common and effective Multilateral standards of SWF transparency accepted standards Sovereign Regulatory and  Increase transparency around Government Oversight Owners political intentions and investment Institutions strategy  Understand SWF motivation SWFs and also potential risks  Acknowledge and address concerns of corporate Companies Other stakeholders and other Considering Financial SWF constituencies Institutions Investments  Study SWF investment patterns to identify opportunities for  Create distance from sovereign government owners to collaboration and co-investment reinforce perceptions of autonomy  Get to know principals at SWFs  Demonstrate that funds are professionally managed and understand their needs  Put in place robust risk-management systems  Build and disclose a track record illustrating pursuit of financial goals ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 28
  • 29. SWFs: Looking Forward Assessing the Risks  SWFs will become fixtures of the global financial system, with more and bigger funds emerging and with continued appetite for higher risk-adjusted returns. Current market forces and improved reception of the funds will tend to reinforce their positive impact  The recently released, voluntary Santiago Principles of the IMF’s International Working Group of SWFs are very positive step in the creation of an international framework for fund best practices – Further progress still can be made on third-party verification of compliance either through IWG’s Standing Group or individual fund actions (e.g., ADIA)  Similar progress is required in creating a reciprocal framework among recipient governments to ensure open and fair investment access to SWFs – OECD Declaration on SWFs adopted in June is only a minimal first step  SWFs are just one form of government investment vehicle. Central banks (e.g., SAFE and SAMA) and state-owned enterprises, which are also participating in a broad range of foreign assets classes, warrant attention as well ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 29
  • 30. Contents Assessing the Risks  Overview of SWF Landscape  Methodology of Study  SWF Behavior: The Evidence of Public Transactions (2000-2008q1)  Recent SWF Behavior: 2008q1 vs. 2008q2  Implications for the Future  Q&A ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 30

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