Sovereign Brands Survey 2010

Sovereign Brands Survey 2010 May 2010 Key Findings

SOVEREIGN BRANDS SURVEY 2010 Welcome to the inaugural Sovereign Brands Survey 2010, a global study into the attitudes of national 1 elites towards sovereign wealth funds (SWFs) and their countries of origin. 2 With a combined wealth of more than $3,500billion in assets, SWFs are a key source of global investment, yet comparatively little is known about them. At a time of great volatility and uncertainty, sovereign wealth funds represent an extremely important source of capital for the global economy. Despite this importance, many nations appear to view these funds with caution, and no matter how large the pool of funds on offer, some SWFs could find their path to the most attractive investments blocked. Conducted by Hill & Knowlton and Penn Schoen Berland - two of the world’s pre-eminent communications and research strategy consultants - the Sovereign Brands Survey 2010 is the most comprehensive study ever conducted into attitudes toward sovereign wealth as a concept, individual sovereign wealth funds (SWFs), and the reputation of their host nations. The study, conducted between 15 January and 1 February this year, covered elite attitudes in seven countries (US, UK, Germany, Egypt, Brazil, India and China) towards 19 SWFs in Norway; Singapore; Hong Kong; Malaysia; Abu Dhabi; Dubai; Kuwait; Qatar; China; Bahrain; Oman; Mexico; Russia; Libya; Kazakhstan; Brunei; Algeria; Nigeria and Botswana. 1 A socio-economic research group commonly used within political campaigns as a proxy for a country’s decision-makers 2 According to The 2010 Preqin Sovereign Wealth Fund review

CONTENT 1. Executive summary 2. Familiarity and favourability towards sovereign wealth 3. Attitudes towards sovereign wealth funds 4. Approval of sovereign wealth fund investment by industry 5. Sovereign wealth in the current economic climate 6. Country reputation and impact on sovereign wealth funds 7. Sovereign wealth fund reputational metrics 8. Sovereign wealth fund league table 9. Implications 3

1. EXECUTIVE SUMMARY THE MAIN FINDINGS OF THE SOVEREIGN BRANDS SURVEY 2010 INCLUDE: LOW FAMILIARITY DRIVES LOW FAVOURABILITY OF SWFS A broad correlation was seen between lower familiarity and lower favourability towards sovereign wealth funds (SWFs). This may have protected SWFs from elites’ worries about the effects of volatile investments as SWFs were seen as being less likely to cause market turmoil than most other forms of investment. DOUBTS CAST OVER RELIABILITY OF SWFS COMPARED TO OTHER SOURCES OF INVESTMENT Low levels of familiarity and favourability towards sovereign wealth is reflected in low trust towards it as a source of investment. There was a clear sign that elites are wary of SWF investments with half saying they would have some level of increased concern about SWFs making investments in their home country. SWFs were generally considered by elites to be less reliable and trustworthy than other sources of investment with the exception of respondents from Germany. There was some suspicion that SWF investment could have political motivations, especially from larger countries. SWFS MISTRUSTED WITH DEFENCE ASSETS BUT WELCOMED INTO OTHER SECTORS Where sovereign wealth was once viewed with suspicion, elites regarded it as a more acceptable source of finance, with elites more favourable to SWF investment in the technology, construction and energy sectors. However, all elites were adverse to SWFs investing in defence assets. ECONOMIC RECOVERY LIKELY TO ACCELERATE INTEREST IN SWFS The investment activity of sovereign wealth was considered one of the least likely to have contributed to market turmoil compared to other sources of investment. At the same time, the impact of the economic downturn and prospect of a recovery was found to have spurred interest in SWF investment in certain markets, especially in the emerging economies of Brazil, India and China. Most elites viewed SWFs as investing for the long term. COUNTRY REPUTATION DETERMINES SWF IMAGE The reputation of a country was found to be a major influence on the reputation of its sovereign wealth fund with elites seeing almost no difference between the two. It helped a SWF if its country of origin was seen as being politically stable; having economic strength and stability; and committed to the rule of law and international standards. These attributes were most important to elites. Countries such as Norway, Singapore and Hong Kong rated highly across these factors and Libya, Algeria, Botswana and Nigeria were regarded less favourably. TRANSPARENCY AND ACCOUNTABILITY KEY CONSIDERATIONS FOR SWF APPROVAL While sentiment towards SWFs had generally improved, there remained some concerns around SWFs making investments into home countries. A SWF’s transparency, accountability, good governance and strong management skills were seen as key factors in gaining elites’ approval. Lack of transparency may be the cause of mistrust amongst elites that SWF investment could be used to exert political influence and acquire strategic assets. 4

SOME SWFS MORE SOUGHT AFTER THAN OTHERS The ability of SWFs to communicate their attributes affected how they were perceived by the elites interviewed and ultimately the investment opportunities available to them. Overall SWFs from Norway, Singapore and Hong Kong were most sought after, and African SWFs (Algeria, Botswana and Nigeria) least sought after. THE COMPETITIVE CHALLENGE SWFs will face greater competition both from each other – and other sources of investment. Concern over behavior may see SWFs facing resistance, and protectionism. The pace of their adoption of global standards of corporate accountability – and their ability to communicate progress – will be a factor in both of these issues. THE COMMUNICATIONS IMPLICATIONS These business implications in turn give rise to a number communications challenges; SWF’s increasing importance will drive greater scrutiny and they will be held to higher standards and behaviours. To maintain the proverbial licence to operate, SWFs will need to demonstrate acceptance of their larger role in the new economy and adopt best practice in communication, transparency, accountability and governance. We believe the adoption of global standards and more effective communication will enable SWFs also to be more competitive. A more open approach will benefit domestic stakeholders by reassuring them of the responsibility of their funds and managers. To counter concern over the acquisition of foreign assets, SWFs need to ensure sufficient groundwork has been undertaken with key stakeholders and endorsers. Notwithstanding the underlying realities of a SWF’s performance against key attributes, country image can yet bring down reputation or provide a signal of quality that can drive preference. Detailed data relating to specific countries and SWFs is available on request or by logging onto www.hillandknowlton.com/sovereignbrands from the 27th May 2010. 5

2. FAMILIARITY AND FAVOURABILITY TOWARDS SOVEREIGN WEALTH FAMILIARITY DRIVES FAVOURABILITY Elites were less familiar with sovereign wealth than they were with other forms of wealth or funds (see chart 1). 57% of elites were familiar with sovereign wealth 66% of elites were familiar with family wealth 82% of elites were familiar with insurance funds This lower familiarity is likely in part to be driving lower favourability for sovereign wealth compared to other forms of investment as there is a clear correlation between the two. 19% of elites were favourable towards sovereign wealth 24% of elites were favourable towards family wealth 33% of elites were favourable towards insurance funds CHART 1: CORRELATION BETWEEN FAMILIARITY AND FAVOURABILITY WITH WEALTH AND FUNDS R² *=0.8861 6

FAMILIARITY DRIVES FAVOURABILITY BY COUNTRY Of the countries surveyed, the US, the UK and India were least familiar and least favourable to sovereign wealth fund investment, whilst Egypt, Germany, Brazil and China were most familiar and most favourable (see chart 2). CHART 2: FAMILIARITY DRIVES FAVOURABILITY Market Familiarity Favourability UK 36 6 US 36 9 India 37 9 China 64 25 Egypt 72 23 Germany 74 19 Brazil 75 43 Q. In general how favourable are you to the following sources of investment? (% Very favourable) /Q. How familiar are you with the following as sources of investment? (% Very/somewhat familiar) 7

3. ATTITUDES TOWARDS SOVEREIGN WEALTH FUNDS CONCERNS ABOUT SWFS Elites were clearly wary of sovereign wealth funds. As you can see in chart 3, half of all respondents were more concerned about sovereign wealth funds investing in their country compared with other forms of finance. CHART 3: CONCERNS ABOUT SOVEREIGN WEALTH FUNDS INVESTING INTO THEIR COUNTRIES VERSUS OTHER FORMS OF FINANCE Q. How concerned, if at all, would you be if a sovereign wealth fund were to invest in your country compared with other forms of finance? RELIABILITY OF SWF INVESTMENT Sovereign wealth was generally seen as a more reliable source of investment than private equity and significantly more reliable than hedge funds, while insurance funds, investment banks and family wealth were considered more reliable (see chart 4). CHART 4: COMPARATIVE RELIABILITY OF INVESTMENT SOURCES Q. How reliable do you consider the following sources of investment compared to other sources of investment? (Much more reliable) 8

TRUST IN SWFS Where it concerns trustworthiness, investment sources were generally perceived in a positive light. Yet again, sovereign wealth was seen as less trustworthy than other investment sources, with hedge funds being the only source seen as less trustworthy (see chart 5). There is a correlation between views on reliability and trustworthiness. Germany considered sovereign wealth to be significantly more reliable and trustworthy than all other forms of investment, whereas the UK, the US and India considered SWFs less reliable and less trustworthy. CHART 5: TRUSTWORTHINESS OF INVESTMENT SOURCES Q. How trustworthy do you consider the following sources of investment to be?(Very/somewhat trustworthy) SWF INVESTMENT MOTIVATED BY POLITICAL OBJECTIVES All countries’ SWFs (with the exception of Singapore and Norway) were considered likely to be motivated by political objectives. As chart 6 illustrates, larger countries were seen as more likely to have political motivations than smaller countries and micro-states. SWF investments from Russia (87%) and China (84%) were considered most likely to be influenced by political objectives SWFs from Botswana (55%), Singapore (50%) and Norway (43%) were seen as least likely to be motivated by political objectives 9

CHART 6: PERCEIVED LIKELIHOOD OF POLITICAL OBJECTIVES INFLUENCING INVESTMENT DECISION Q. In your opinion, how likely is it that the sovereign wealth funds indicated have a political objectives that might influence their investment decisions? 10

4. APPROVAL OF SOVEREIGN WEALTH FUNDS INVESTMENT BY INDUSTRY SWF INVESTMENT BY INDUSTRY Elites were found to be open to sovereign wealth fund investment in most industries, with particularly high approval in technology, construction, energy and healthcare (see chart 7). All elites were adverse to SWFs investing in their defence sectors (45% approval overall), this view felt most strongly by elites in the UK and Germany. Elites in Brazil, India, China and Egypt were particularly keen for investment into their finance sector. CHART 7: APPROVAL RATINGS FOR SWF INVESTMENTS BY INDUSTRY Q: To what extent do you approve or disapprove of sovereign wealth funds investing in the following sectors of your country’s economy? (Strongly/somewhat approve) 11

5. SOVEREIGN WEALTH IN THE CURRENT ECONOMIC CLIMATE CONTRIBUTION TO MARKET TURMOIL Sovereign wealth funds were blamed less for market turmoil than some other forms of investment, such as hedge funds and investment banks, as illustrated by chart 8. CHART 8: CONTRIBUTION TO MARKET TURMOIL COMPARED TO OTHER FORMS OF INVESTMENT Q. Based on your impressions, to what extent do you agree or disagree that the investment activities of the sources of investment below contribute more to market turmoil and uncertainty than other forms of investment? (Strongly/somewhat agree) EFFECT OF GLOBAL DOWNTURN ON INTEREST IN SWFS The global downturn has spurred interest in SWF investment with more than half (51%) of elites saying they were somewhat or much more favourable towards SWFs since the downturn (see chart 9). This view was felt most strongly in the emerging economies of Brazil, India and China. CHART 9: RECESSION’S IMPACT ON SWF FAVOURABILITY Q. How, if at all, has your favourability towards sovereign wealth funds changed since the global downturn? 12

EFFECT OF ECONOMIC RECOVERY ON INTEREST IN SWFS The economic recovery has spurred interest in SWFs, with 58% of elites questioned saying they were more favourable towards this type of investment as the global economy improves, compared to 7% who were less favourable, and 35% whose views haven’t changed (see chart 10). Brazil, India and China were more favourable than the UK, the US, Egypt and Germany, and their interest is likely to accelerate as the global economic outlook improves. Brazil, India and China were also the most cautious about SWFs investing in their countries with China (97%) and India (60%) expressing this view most strongly. CHART 10: RECOVERY’S IMPACT ON SWF FAVOURABILITY Q. How, if at all, has your favourability towards sovereign wealth funds changed since the global downturn? LONG-TERM INVESTORS Sovereign wealth funds were perceived as investing for the long term when compared with other investment vehicles, with nearly seven out of ten (68%) having this view. 13

6. COUNTRY REPUTATION AND IMPACT ON SOVEREIGN WEALTH FUNDS COUNTRY REPUTATION AND SWF REPUTATION A country’s reputation is a strong driver of the perception of its SWF with 98% of all elites interviewed believing this to be somewhat / very important. The reputation of a country and the reputation of its sovereign wealth fund are closely linked – as chart 11 illustrates. It helps a sovereign wealth fund if its country of origin is seen as politically stable; having economic strength and stability; and committed to the rule of law and international standards. Elites saw almost no difference between a country and its sovereign wealth fund, with minor statistical significance only seen in political stability, adherence to international regulatory standards and strong economic potential. CHART 11: COUNTRY REPUTATION AND SWF REPUTATION Q. How important are the following attributes of a country in terms how much it influences your view of that country? (% Very Important) 14

PREFERRED HOST COUNTRIES The countries that were as seen as being politically stable; having economic strength and stability; and committed to the rule of law and international standards, were also the preferred host countries from which SWF investment would be most approved (see chart 12). Countries such as Norway, Singapore and Hong Kong rated highly across these factors and would be most welcomed, and Libya, Algeria, Botswana and Nigeria were regarded less favourably. CHART 12: HOST COUNTRIES FROM WHICH SWF INVESTMENT WOULD BE MOST APPROVED 88% 83% 83% 74% 73% 72% 69% 69% 63% 62% 62% 62% 61% 44% 42% 35% 33% 33% 30% Q. To what extent do you approve or disapprove of sovereign wealth funds from the following countries investing in your country? (Strongly/somewhat approve) 15

7. SOVEREIGN WEALTH FUND REPUTATIONAL METRICS SWF REPUTATIONAL FACTORS In addition to the importance of the host country’s reputation, SWF reputations are also built on their own attributes. As chart 13 illustrates, transparency, accountability, good governance and strong management skills were seen as key factors in gaining elites’ approval for a sovereign wealth fund to invest in their home country. CHART 13: REPUTATIONAL FACTORS Q. How important to you are the following factors in deciding whether you would approve or disapprove of a sovereign wealth fund investing in your country and industries? (Very important) REPUTATIONAL FACTORS FOR SPECIFIC SOVEREIGN WEALTH FUNDS Norway, Singapore and Hong Kong’s SWFs best demonstrated the attributes considered to be key by elites, as illustrated by chart 14. 16

CHART 14: REPUTATIONAL FACTORS FOR SPECIFIC SOVEREIGN WEALTH FUNDS Q. To the best of your knowledge, which of these factors do you think apply to the following country sovereign funds? (% Applies) 17

8. SOVEREIGN WEALTH FUND LEAGUE TABLE APPROVAL OF SOVEREIGN WEALTH FUND INVESTMENT FROM DIFFERENT COUNTRIES Unsurprisingly, there is a correlation between how SWFs were rated in terms of key reputational metrics such as transparency, accountability and good governance, with the degree to which their investments would be met with approval or disapproval. Overall SWFs from Norway, Singapore and Hong Kong were most sought after amongst the elites interviewed, and African SWFs (Algeria, Botswana and Nigeria) the least – as chart 15 illustrates. CHART 15: APPROVAL OF SOVEREIGN WEALTH FUND INVESTMENT FROM DIFFERENT COUNTRIES Q To what extent do you approve or disapprove of sovereign wealth funds from the following countries investing in your country? (% strongly/somewhat approve) 18

9. IMPLICATIONS THE COMPETITIVE CHALLENGE Drawing on the many insights revealed by the Sovereign Brands Study 2010, and put against the backdrop of the trends within the global business environment, there are a number of conclusions about the business implications facing SWFs which can be drawn. Key amongst these are that: 1. SWFs are set to face greater competition both from each other – as well as other sources of investment – for the best assets and investments; 2. SWFs may face resistance, and in some cases protectionism, founded on continuing concerns over their behavior; and 3. The pace of their adoption of global standards of corporate accountability – and their ability to communicate progress – will be a factor in both of the above THE COMMUNICATIONS IMPLICATIONS These business implications in turn give rise to a number communications challenges: 1. EXPECTATIONS WILL INCREASE WITH IMPORTANCE Inevitably their increasing importance in the global financial system will drive curiosity and scrutiny of SWFs, as it did with hedge funds a decade or so ago. In our view expectations of global standards of transparency and communication will similarly increase. As more visible global players in the world economy they will be expected to act – and be seen to act – in line with global standards of corporate behaviour. In addition, as scrutiny grows, so will their profile – and differences will become more apparent, individually and collectively; if they do not tell their story and communicate their positions, others may fill the gap with harmful speculation 2. NEED TO ACT TO COMBAT PROTECTIONISM. In order to rebut criticism and avoid protectionism, SWF’s will need to demonstrate acceptance of their larger role in the new economy. This will most effectively be done through adopting best practice in communication as well as transparency, accountability and governance. 3. COMPETITION FOR ASSETS WILL BECOME KEENER In our view adoption of global standards and more effective communication will also enable SWF’s to compete more effectively in the global marketplace as a recognised set of investors. Over time SWF’s may differentiate themselves individually based on their individual strengths and strategies to more actively compete amongst each other 4. TRUST AT HOME Adopting a more open approach will have the benefit of building trust with domestic stakeholders in a SWF’s home market, by reassuring them of the responsibility and effectiveness of their funds and managers. 19

5. TRUST ABROAD Much of the resistance to SWFs in recent years has been centred on their acquisition of foreign assets, often considered of a strategic nature. SWFs need to ensure acquisitions are progressed only after sufficient preparations laying the groundwork have been undertaken with key stakeholders and endorsers. 6. COUNTRY IMAGE CAN BE A BUSINESS PROBLEM OR COMPETITIVE ADVANTAGE Notwithstanding the underlying realities of a SWF’s performance in key attributes, its reputation can still be brought down where a host country has a poor image. Where host country reputation is strong it provides a signal of quality and may drive SWF preference. TOWARDS BEST PRACTICE – PRACTICAL STRATEGIES FOR SOVEREIGN WEALTH FUNDS In seeking to overcome some or all of the communications implications listed above, there are a number of practical communications strategies which SWFs can implement. However, as we have seen from the findings, it should be recognized that the broad approach set out below is just that, and each SWF will need to have a more bespoke approach befitting its circumstances and the perceptions of its stakeholders in its key markets. 1. ADOPT INTERNATIONAL STANDARDS OF CORPORATE BEHAVIOUR There is much that SWFs can learn from studying international standards of corporate communication. For SWFs this means, ideally going beyond the Santiago Principles and some current communications best practice includes: a) Web sites (Norway, Singapore, China, Abu Dhabi) b) Senior management media interviews (Mubadala, UAE) c) Annual reports (Singapore, Norway and soon Abu Dhabi) 2. OPEN A REAL DIALOGUE Use greater and more effective communications to educate investors and commentators and so drive familiarity, which will increase favourability. (See Norway & Singapore for current best practice). However, this must be a two-way communication where listening and acting is crucial. 3. REPUTATION IN THE ROUND While the survey results show that trust will be founded on transparency, governance and accountability, the strongest reputations will be those that are also based on leadership, credible strategy and performance. 4. FOCUS ON OR BUILD STRENGTHS Where SWF’s host nation has a generally unfavourable image, the focus should be on upholding and communicating its adherence to the highest levels of governance – particularly in the areas identified as most important to stakeholders. SWFs should also encourage their host government 20

to lead a coalition of interests to improve its country image – particularly in the areas of stability, the rule of law and adoption of international standards 5. LEADERS EXCEED SOCIETAL EXPECTATIONS Those larger funds which have already made strides in these areas should begin to think about the next stage in global corporate behaviour – providing leadership by actively participating in, and contributing to the development of global economic policy. 6. THE RIGHT FOCUS When making acquisitions, SWFs should ensure that the groundwork covers effective communications preparation and at the very least includes: research to understand the perceptions, drivers and motivations of key stakeholders towards investment in specific asset classes; prior engagement to build a cadre of supporters and advocates who can be called on at the appropriate time to provide endorsement; and genuine efforts to be – and be seen as – true ‘partners’ to all relevant stakeholders. 21

FOR FURTHER INFORMATION: POPPY NAGRA Global PR Manager Hill & Knowlton Tel. +44 207 413 3021 Mob. +44 7956 169209 Email: pnagra@hillandknowlton.com RYAN GAWN Director Penn Schoen Berland Tel. +44 207 300 6230 Mob. +44 7909 881031 Email: rgawn@ps-b.com NOTES TO EDITORS: METHODOLOGY • PSB conducted 1064 interviews among broad elites in 7 markets* (c.150 interviews in each market) between 15 January 2010 and 1 February 2010. • Interviews were conducted online in the UK, US, Brazil, Germany, China and India. Interviews in Egypt were conducted face to face. • Broad elites are defined as influential members of society who are university educated, earning in excess of £50k or local market equivalent and with an active interest in national and international affairs in the both politics and business. This group is commonly used as a proxy for decision makers and their influencers. All UK US Brazil Germany China India Egypt 1064 150 151 150 150 153 152 158 22

Markets where research was Host countries with SWFs: conducted: Norway UK Singapore US Hong Kong Egypt Malaysia Brazil Abu Dhabi Germany Dubai China Kuwait India Qatar China Bahrain Oman Mexico Russia Libya Kazakhstan Brunei Algeria Nigeria Botswana 23

ABOUT HILL & KNOWLTON Hill & Knowlton, Inc. is a leading international communications consultancy, providing services to local, multinational and global clients. The firm is headquartered in New York, with 79 offices in 44 countries, as well as an extensive associate network. The agency is part of WPP, one of the world's largest communications services groups. ABOUT PENN SCHOEN BERLAND Penn Schoen Berland, a unit of the WPP Group (NASDAQ: WPPGY), is a global research-based consultancy that specializes in messaging and communications strategy for blue-chip political, corporate and entertainment clients. We have over 30 years of experience in leveraging unique insights about consumer opinion to provide clients with a competitive advantage - what we call Winning Knowledge™. PSB executes polling and message testing services for Fortune 100 corporations and has helped elect more than 30 presidents and prime ministers around the world. More information is available at www.psbresearch.com. 24

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Sovereign Brands Survey 2010

by Hill Knowlton on May 25, 2010

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Sovereign Brands Survey 2010 — Document Transcript