WSG Annual Meeting, Munich 2008

Sovereign Wealth Fund Activity in Private Equity and Private Real Estate

September 12th, 2008

Private Equity Intelligence Ltd., www.preqin.com

Sovereign Wealth Fund Activity in Private Equity and Private Real Estate

• SWF universe: small number of very large investors, with total assets growing rapidly

• Historically mostly conservative investors, modest allocations to alternative assets

– However, ‘natural’ investors in alternatives: long time horizon; no fixed liabilities to match

– Many now entering / increasing allocations– Huge growth potential: Asset Base X Allocations

• Potential recognised by fund managers:– Anchor positions in large funds– Tailored fund structures– Invest in management company– Direct / co-investments

• Behaving very much like other major investors

Largest SWF Investors

Some would include China’s State Administration of Foreign Exchange - $1,680 bn – as a SWF.

Investor Location

Estimated Funds under Management

$bnCumulative

$bnCumulative

%1 Abu Dhabi Investment Authority UAE 875 0.9 27%2 Government Pension Fund - Global Norway 362 1.2 38%3 Government of Singapore Inv Corp Singapore 330 1.6 48%4 Kuwait Investment Authority Kuwait 250 1.8 56%5 Brazil Sovereign Wealth Fund Brazil 200 2.0 62%6 China Investment Corporation China 200 2.2 68%7 Hong Kong Monetary Auth Inv Portf Hong Kong 186 2.4 74%8 Reserve Fund Russia 128 2.5 77%9 Temasek Holdings Singapore 115 2.6 81%

10 National Social Security Fund - China China 74 2.7 83%

Top 10 SWF's $2.7 tr 83%

Rest (43) $0.6 tr 17%

SWF’s Investing in Private Equity

Average LP Allocations to Private Equity

SWF current PE allocations not known with precision – estimate at 2 – 3% median

Patterns of SWF Investment in Private Equity

1. ‘Standard’ LP investments in Private Equity Funds– ADIA, GIC, Temasek, KIA, QIA, Alaska Permanent Fund,

etc.– Pure investment rationale, limited influence on GP’s

activities

2. ‘Anchor’ LP investments in Private Equity Funds– National Social Security Fund – China, Temasek

Holdings, CIC investment in dedicated JC Flowers fund– Anchor investor in fund to give investor bigger stake and

/ or act as catalyst for economic development purposes

Examples – ‘Standard’ LP Investment – Known ADIA Fund Investments

Examples – ‘Anchor’ LP investments in Private Equity Funds

Patterns of SWF Investment in Private Equity (contd.)

3. Investment in the management company itself, often in addition to investing in funds– CIC investment in Blackstone, Mubadalar investment in

Carlyle, ADIA stake in EFG-Hermes, etc.– Usually seen as a means of increasing exposure to

private equity; enhanced alignment between LP and GP; some influence

4. Direct investments in private companies– Istithmar World Capital

5. PIPE – Private Investment in Public Equity– ADIA investment in Citigroup

What If?

AUM $tr % allocation to PE $bn PE Investment Aggregate SWF % of 2008 Global PE Assets

2008 3.8 2.5% 95 5%

2010 5 4% 200 10%

2015 10 8% 800 40%

SWF’s Investing in Real Estate

Sovereign Wealth Fund Activity in Private Equity and Private Real Estate

• SWF universe: small number of very large investors, with total assets growing rapidly

• Historically mostly conservative investors, modest allocations to alternative assets

– However, ‘natural’ investors in alternatives: long time horizon; no fixed liabilities to match

– Many now entering / increasing allocations– Huge growth potential: Asset Base X Allocations

• Potential recognised by fund managers:– Anchor positions in large funds– Tailored fund structures– Invest in management company– Direct / co-investments

• Behaving very much like other major investors