Presentation on SWF Investment at HBS by Drosten Fisher of Monitor Group
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Transcript of Presentation on SWF Investment at HBS by Drosten Fisher of Monitor Group
Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAMZAD-NED-Prez-Date-CTL 1
Assessing the Risks
Harvard Business School
Cambridge, MA
December 6, 2008
William Miracky Davis Dyer Drosten Fisher Victoria Barbary Edward Chin
Drosten Fisher
+1 617 252 2397
Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAMZAD-NED-Prez-Date-CTL 2
Assessing the RisksMonitor SWF Transaction Database: Methodology
Publicly available sourcesPublicly available sourcesof SWF activityof SWF activity
SWFsSWFs andandrecent dealsrecent deals
Data assessment
Focus on direct investmentFocus on direct investmentin equities and real estatein equities and real estate
Final DatasetFinal Dataset
Data collected
Data checked andverified
Limitedtransparency andspotty reporting
1,181 deals, 25 funds1975–Q1 2008
Funds not meeting ourdefinition
Deals before 2000
17 funds, 785 deals$250 bn investment
Subscriptiondatabases, pressarticles, websites offunds, and recipientcompanies
Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAMZAD-NED-Prez-Date-CTL 3
Assessing the Risks
131
146
129137
90
47
6063
53
10092
49
28
86343
0
40
80
120
160
2000 2001 2002 2003 2004 2005 2006 2007 2008(Q1-Q3)
Number
Value ($Bn)
Recent SWF Investments by Year
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
Note: Publicly available data for SWF equity dealsSource: Monitor SWF Transaction Database
Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAMZAD-NED-Prez-Date-CTL 4
Assessing the RisksSWF Investment by Area
Since 2000, some two thirds of SWF investment by value has been in the OECD. However, two thirds ofthe deals by number were in emerging markets.
OECD61%
BRIC14%
Non-OECD(excluding BRIC)
50%
BRIC19%
OECD31%
Number of Deals by Region(785 deals)
Value of Deals by Region($250 Bn)
Non-OECD(excluding
BRIC)25%
Note: Publicly available data for SWF equity deals 2000-Q1 2008Source: Monitor SWF Transaction Database
Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAMZAD-NED-Prez-Date-CTL 5
Assessing the Risks
Since 2000, funds based in MENA have invested $100 billion in 205 deals. $73 billion has gone to NorthAmerica and Europe, but this accounted for fewer than half the deals.
Investment Flows: Middle East and North Africa (MENA)
Note: Publicly available data for MENA SWF equity deals 2000-Q1 2008Source: Monitor SWF Transaction Database
Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAMZAD-NED-Prez-Date-CTL 6
Assessing the RisksInvestment Flows: Asia-Pacific
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 2008Source: Monitor SWF Transaction Database
Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAMZAD-NED-Prez-Date-CTL 7
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 atypicalintensity of investment in that sector during the sub-prime mortgage crisis during 2007 and early 2008.
Number of Deals by Sector(785 deals)
Value of Deals by Sector($250 Bn)
Other3%
Transport4%
Healthcare4%
Telecom6% Financials
22%
Real Estate18%
Industrials15%
IT10%
Energy8%
Other8%
Healthcare2%
Telecom2%
IT1%
Consumer3%
Industrials8%
Financials46%
Real Estate19%
Energy11%
Consumer10%
SWF Investment by Sector
Note: Publicly available data for SWF equity deals 2000-Q1 2008Source: Monitor SWF Transaction Database
Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAMZAD-NED-Prez-Date-CTL 8
Assessing the RisksSWF Investment: Analyzing Ownership and Control
Contrary to popular opinion, SWFs do take controlling stakes, however they rarely do so in OECDmarkets.
Notes: Sensitive sectors include Energy & Utilities, Financials, Information Technology, Infrastructure and Government, Telecom, and Transportation & AerospaceSource: Monitor SWF Transaction Database
8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%3%
8%
39%
50%
Number of Deals
11%
10%
71%
Value of Deals
Controlling Stake in"Sensitive" Sectors - OECD
Controlling Stake inNon-Sensitive Sector - OECD
Controlling Stake - Non-OECD
Not a Controlling Stake
Stake Data by Sector and Geography, 2000–Q1 2008
Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAMZAD-NED-Prez-Date-CTL 9
Assessing the RisksSummary of Findings on Investment Behavior of SWFs
SWFs invest heavily in domestic and emerging markets. A majority of SWF investments by value occur in
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,
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,
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
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
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.
11
22
33
44
55
Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAMZAD-NED-Prez-Date-CTL 10
Assessing the RisksRecent SWF Behavior: Q1 Through Q3 2008, by Target Sector
Value of SWF Investments Q1 through Q3 2008 by Target Sector
Note: Publicly available data for SWF equity dealsSource: Monitor SWF Transaction Database
9.5
3.2
0
10
20
30
40
50
60
70
15.9
3.2
2.7
Financials
Real Estate
Industrials
Energy and Utilities
Other
2008q32008q2
26.5
4.0
13.7
4.0
2.5
3.1
2008q1
4.1
58.3
43.4
2.12.2
$ Bn
Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAMZAD-NED-Prez-Date-CTL 11
Assessing the RisksSWF Investment by Target Sector
Number of Deals by Target Sector, 2000–Q3 2008
0%
25%
50%
75%
100%
2000
54%
19%
10%
17%
63
2001
50%
23%
15%
12%
60
2002
57%
17%
9%
17%
47
2003
50%
20%
13%
17%
90
2004
44%
15%
23%
19%
137
2005
51%
12%
22%
16%
129
2006
36%
9%
23%
32%
146
2007
31%
10%
29%
31%
42
2008q1
47%
2%
55%
23%
43
2008q2
59%
15%
17%
9%
46
28%
Other
Industrials
Real Estate
Financials
21%
4%
21%
53
2008q3
Note: Publicly available data for SWF equity deals 2000-Q3 2008Source: Monitor SWF Transaction Database
Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAMZAD-NED-Prez-Date-CTL 12
Assessing the RisksRecent SWF Behavior: Q1 Through Q3 2008, by Target Region
Note: Publicly available data for SWF equity dealsSource: Monitor SWF Transaction Database
24.2
4.4
0
10
20
30
40
50
60
70
0.9
11.1
23.1
58.3
2008q1
11.1
8.0
26.5
2008q2
6.8
5.1
2.4
15.9
2008q3
Other
Asia Pacific
MENA
Europe
North America
Value of SWF Investments Q1 through Q3 2008 by Target Region
$ Bn
Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAMZAD-NED-Prez-Date-CTL 13
Assessing the RisksSWF Investment by Location of Target: OECD vs. Emerging Markets
Value of Deals by OECD vs. Emerging Markets, 2000–Q3 2008 ($Bn)
0%
25%
50%
75%
100%
41%
2003
32%
2.9
2000
68%
7.9
19%
81%
2004
38%
4.2
2001
62%
27.9
22%
78%
2005
65%
3.0
2002
35%
48.9
15%
85%
2006
84%
6.2
16%
38%
62%
91.9
2007
59%
2008q2
63%
37%
52%
48%
24.5
2008q1
15.9
2008q3
OECD
Emerging Markets
58.3
Note: Publicly available data for SWF equity deals 2000-Q3 2008Source: Monitor SWF Transaction Database
Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAMZAD-NED-Prez-Date-CTL 14
Assessing the Risks2008 Q2 and Q3 Highlights
In the third quarter of 2008, funds in the Monitor SWF Transaction Database executed 46 dealstotaling $15.9 billion. This is a decline from 58.3 billion in Q1, and 26.5 in Q2, during which periodthe total number of deals per quarter was similar.
Investment in financial sector targets has fallen off significantly since Q1; real estateinvestment, which spiked up in Q2, also dropped sharply in Q3. Financials comprised $43.4billion of deal value in Q1, compared to $4 billion each in Q2 and Q3. Real Estate deals were $3.2billion 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 in7 SWF deals totaling $2.4 billion; in Q2 the totals were 4 deals and less than $1 billion invested. Incontrast, there 7 North American deals totaling $23 billion during Q1 2008. Overall, investment inOECD countries has declined sharply during 2008, from $37 billion in Q1 to $9 billion in Q2 and $8billion in Q3
SWF recent behavior shows a marked shift toward domestic and emerging markets deals. 46%of reported deals in Q3 were domestic transactions, the highest percentage since 2003. Also, 54% ofQ2 and Q3 deals by value ($23 billion out of $42 billion) were in emerging markets, the highest shareof total deal value since 2005.
SWFs from the MENA region were the most active in Q3, carrying out some 90% of the dealsby value. Asian and European SWFs were much less active in Q3 2008 than in previous years.
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22
33
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