Presentation on SWF Investment at HBS by Drosten Fisher of Monitor Group
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Presentation on SWF Investment at HBS by Drosten Fisher of Monitor Group

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Presentation on main trends on investment by Sovereign Wealth funds, given to the students at Harvard Business School

Presentation on main trends on investment by Sovereign Wealth funds, given to the students at Harvard Business School

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    Presentation on SWF Investment at HBS by Drosten Fisher of Monitor Group Presentation on SWF Investment at HBS by Drosten Fisher of Monitor Group Presentation Transcript

    • Assessing the Risks William Miracky Davis Dyer Drosten Fisher Victoria Barbary Edward Chin Harvard Business School Cambridge, MA December 6, 2008 Drosten Fisher drosten_fisher@monitor.com +1 617 252 2397 ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 1
    • 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 $250 bn investment Final Dataset ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 2
    • Recent SWF Investments by Year Assessing the Risks Since 2000, there has been a marked increase in SWF direct investment in equities and real estate. SWF Equity Transactions by Number and Volume Since 2000 160 Number 146 Value ($Bn) 137  129 131 120 100 90 92 80 63 60 53 49 47 40 28 4 6 8 3 3 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 (Q1-Q3) 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 3
    • 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 4
    • 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 5
    • 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 6
    • 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 7
    • 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 8
    • 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 9
    • Recent SWF Behavior: Q1 Through Q3 2008, by Target Sector Assessing the Risks Value of SWF Investments Q1 through Q3 2008 by Target Sector 70 Other Energy and Utilities 60 58.3 Industrials 9.5 Real Estate 50 Financials 2.2 2.1 40 $ Bn 30 26.5 3.1 43.4 3.2 20 2.5 15.9 2.7 10 13.7 4.1 3.2 4.0 4.0 0 2008q1 2008q2 2008q3 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 10
    • SWF Investment by Target Sector Assessing the Risks Number of Deals by Target Sector, 2000–Q3 2008 53 63 60 47 90 137 129 146 42 43 46 100% Other Industrials 31% Real Estate 36% Financials 44% 47% 75% 50% 50% 51% 55% 54% 57% 59% 10% 9% 2% 50% 15% 29% 12% 23% 23% 20% 19% 28% 21% 17% 15% 23% 25% 22% 4% 10% 13% 9% 15% 32% 17% 31% 21% 23% 17% 17% 17% 19% 16% 12% 9% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008q1 2008q2 2008q3 Note: Publicly available data for SWF equity deals 2000-Q3 2008 Source: Monitor SWF Transaction Database ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 11
    • Recent SWF Behavior: Q1 Through Q3 2008, by Target Region Assessing the Risks Value of SWF Investments Q1 through Q3 2008 by Target Region 70 Other Asia Pacific 60 58.3 MENA Europe 50 North America 24.2 40 $ Bn 30 11.1 26.5 4.4 20 15.9 11.1 10 23.1 6.8 8.0 5.1 0 0.9 2.4 2008q1 2008q2 2008q3 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 12
    • SWF Investment by Location of Target: OECD vs. Emerging Markets Assessing the Risks Value of Deals by OECD vs. Emerging Markets, 2000–Q3 2008 ($Bn) 2.9 4.2 3.0 6.2 7.9 27.9 48.9 91.9 58.3 24.5 15.9 100% OECD 15% Emerging Markets 19% 22% 32% 38% 38% 75% 52% 59% 63% 65% 84% 50% 85% 81% 78% 68% 62% 62% 25% 48% 41% 37% 35% 16% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008q1 2008q2 2008q3 Note: Publicly available data for SWF equity deals 2000-Q3 2008 Source: Monitor SWF Transaction Database ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 13
    • 2008 Q2 and Q3 Highlights Assessing the Risks In the third quarter of 2008, funds in the Monitor SWF Transaction Database executed 46 deals 1 totaling $15.9 billion. This is a decline from 58.3 billion in Q1, and 26.5 in Q2, during which period the total number of deals per quarter was similar. Investment in financial sector targets has fallen off significantly since Q1; real estate 2 investment, which spiked up in Q2, also dropped sharply in Q3. Financials comprised $43.4 billion of deal value in Q1, compared to $4 billion each in Q2 and Q3. Real Estate deals were $3.2 billion in Q3 (16% of the total), compared to $13.7 billion (52%) in Q2 2008. Investment in North America dropped dramatically. In Q3 North American targets were involved in 3 7 SWF deals totaling $2.4 billion; in Q2 the totals were 4 deals and less than $1 billion invested. In contrast, there 7 North American deals totaling $23 billion during Q1 2008. Overall, investment in OECD countries has declined sharply during 2008, from $37 billion in Q1 to $9 billion in Q2 and $8 billion in Q3 SWF recent behavior shows a marked shift toward domestic and emerging markets deals. 46% 4 of reported deals in Q3 were domestic transactions, the highest percentage since 2003. Also, 54% of Q2 and Q3 deals by value ($23 billion out of $42 billion) were in emerging markets, the highest share of total deal value since 2005. SWFs from the MENA region were the most active in Q3, carrying out some 90% of the deals 5 by value. Asian and European SWFs were much less active in Q3 2008 than in previous years. ZAD-NED-Prez-Date-CTL Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAM 14