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Sovereign Wealth Funds
 

Sovereign Wealth Funds

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All about SWFs

All about SWFs

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    Sovereign Wealth Funds Sovereign Wealth Funds Presentation Transcript

    • PrafulAnchaliya Sabina Islam Sahil Jain Vijay Krishna
      Sovereign Wealth Funds:
      A new (old) force in the capital markets
    • Sources of Funds
    • Are all SWF’s same???
      No
      Use of earnings from export commodities and revenue receipts.
      Use of foreign exchange reserve.
    • Comparison of SWF with others
    • Existence of SWF’s
      SWF has been existent in the markets since decades
      KUWAIT INVESTMENT BOARD -1950
      Abu Dhabi Investment authority – 1976
      Saudi Arabia monetary authority – 1952
      Tamasek holdings – 1974
      Government of Singapore investment corporation – 1981
      China investment corporation – 2007
    • Trends in SWF
      Traditionally, long-term, passive approach to investing
      Therefore, no-widespread public attention
      Recently,
      more active investment approach by co-investing in M & A deals
      E.g.: Barclays Taemasek-China Development Bank
      Commitment of money to private equity for diversification
      E.g.: CIC purchased 10% stake in US private equity firm for $3 billion in 2007
    • Market Size
      Based on market estimates, assets under management by SWFs may currently amount to over USD 3.1 tr
      In terms of size, therefore, SWFs are a more significant industry than hedge funds, but – for the moment – are far smaller than most other types of institutional investors
      Relative weight in global capital markets: however, may well change in the years to come given the growth dynamics behind state funds, especially in emerging economies, as the volume of funds disposable for SWF investments may increase substantially in future
      International reserves has been steadily increasing over past five years
      This has particularly been the case in many emerging economies which benefited from oil revenues, such as oil-exporting countries in the Middle East or Latin America, or rising competitiveness and improving balances of payments vis-à-vis established industrialised economies, especially China, South Korea or Taiwan
    • Changing Flows and Market Opportunities
      Most SWFs enjoy considerable freedom in their investment decisions and are expected to maximise performance
      In their asset management, SWFs are likely to behave similarly to investment, pension, hedge or private equity funds, seeking to diversify across a wide range of asset classes in different countries
      Over coming five years: In quantitative terms, future SWF asset allocation could lead to a gross capital inflow of over USD 1 tr into global equity markets and USD 1.5 tr into global debt markets
    • Geo Economic Implications of SWF.
      To protect domestic currencies and banks from crisis
      Broad range of investments opportunities
      Implication to government and business
      Lower taxes, better public works, strong state run business
      Capital inflows are positive
    • ISSUE OF TRANSPERENCY
      Lack of transparency!!
      Objectives not stated clearly
      Lack of guidelines on ethical standards & investment policies.
      No information about returns & people behind the investment.
    • Principles drafted for SWF
      SWF investment decisions should be based on commercial grounds and should not hold geopolitical goals of the controlling government.
      Greater information disclosure by SWF’s about fund size, investment objective , institutional arrangements & financial information-asset allocation,benchmarks and returns.
      Strong governance structure , internal controls
      Respect host country rules.
    • The Deal for Merrill Lynch
      15th JAN 2008-$6.6 billion dollars-KIA+Korean investment Corporation & Mizuho Corporate Bank.
      $ 5 billion dollars – TEMASEK
      $1.2 billion dollars Davis Selected Advisers.
    • Deal Insight
      Security issued- Non Voting mandatory convertible , preferred stock
      Dividend-9%
      Reference stock price-$52.40
      Conversion premium-17%
      Maturity – 2.75 years
      Liquidation preference – $100,000 per share
      Stock price movement
      Jan 2006 – April 2008
      High-97.5$
      Low-39.9$
      Average- 74.2$
      On announcement – 53.9$
      After announcement
      High -21.8
      Low – 4.15
      Current – 21.05
      Was the above deal terms appealing?
      Was the deal in favor of ML?
      Average ML dividend Yield 1.4% , but promising a 9% dividend yield isn't that too much?
      Were these funds the right kind of investors?
    • Recent investments
      Singapore’s GIC: £4.8 billion stake in UBS
      Saudi group: £800+ million in UBS
      ADIA: £3.75 billion in Citigroup
      Singapore’s Temasek: £2.5 billion in Merrill Lynch
      China Investment Corp: £2.5 billion in Morgan Stanley
      China’s Citic Fund: £500 million in Bear Stearns
    • Conclusion
      Global reach for companies.
      Reduction in financial market uncertainty
      Build trust in recipient countries.
      Stabilization of markets
      Transparency in financial and investment objectives, asset allocation and rate of returns.
      Diversified investment for companies.