swf db research

Sovereign wealth funds – state investments during the financial crisisJuly 2009

Steffen Kern

Editorial note► This presentation provides data and evidence as an update of previous Deutsche Bank Research

publications on this topic, especially “SWFs and foreign investment policies – an update”,Deutsche Bank Research, Current Issues, October 22, 2008.Deutsche Bank Research, Current Issues, October 22, 2008.

► The data provided in this presentation is valid as of June 5, 2009, unless specified otherwise.

► The data provided in this presentation cannot be directly compared with evidence in previouspublications by Deutsche Bank Research as changes have occurred in the external databasespublications by Deutsche Bank Research as changes have occurred in the external databasesused for this analysis and data categorisation.

► Authoritative or authorised information on asset sizes, asset allocation, funding, investmentstrategies and investment transactions of SWFs is still very scarce. The figures presented in thispresentation have been collected from various publicly available sources and checked againstpublic market information with the aim of maximising plausibility. Given the fragility of underlyingdata, all SWF-related figures and the calculations based upon them in this presentation should beconsidered as indicative and treated with due caution.

Steffen Kern | July 15, 2009 |

Agenda

I d t i11

g

Industry overview11

22 Impact of economic crisis22 Impact of economic crisis

Growth prospects33

Investment trends44

SWF disinvestments55

Policy issues66


SWFs – a more than USD 3 trillion business…11

Assets under management in USD bn, estimated Major SWFs worldwide

NorwayNBIM

USD 350bn RussiaSFRF

USD 190bnGovernment of Singapore Investment Corporation (GIC)

Norges Bank Investment Management (NBIM), NO

Various funds, SA

Abu Dhabi Investment Authority (ADIA), AE

values or ranges, latest data available

KuwaitKIA

ChinaCIC

USD 200bnTemasek Holdings Ltd., SG

China Investment Corporation, CIC, CN

Hong Kong Monetary Authority Investment Portfolio, HK

Kuwait Investment Authority (KIA), KW

Government of Singapore Investment Corporation (GIC), SG

Abu DhabiADIA

USD 700bnSingapore

GIC/T kSaudi Arabia

Various

USD 169bn

Hong KongHKMA-IP

USD 200bnInvestment Corporation of Dubai, AE

National Wealth Fund, RU

Libyan Arab Foreign Investment Company (LAFICO), LY

Reserve Fund, RU

g ,

GIC/TemasekUSD 350bn

VariousUSD 400bn

SWFsAlaska Permanent Reserve Fund Corporation (APRF), US

Fonds de Régulation des Recettes de l'Algérie, DZ

Australian Government Future Fund (AGFF), AU

Qatar Investment Authority, QIA, QA

Others, various countries

National Pensions Reserve Fund (NPRF), IE

Kazakhstan National Fund (KNF), KZ

Korea Investment Corporation (KIC), SK

Brunei Investment Agency (BIA), BN

0 150 300 450 600 750 900

Others, various countries

Source: DB Research


… that thus far plays a limited role in global finance11

p y g► SWF assets under management are estimated

to amount to more than USD 3 tr

►

SWF assets in comparisonAsset classes by volume, USD tr and SWF assets as % of other asset classes, latest data available

► This is an impressive figure, representing amultiple of the assets held a decade ago

► In comparison with other asset classes andfinancial market segments the size of SWFs is 54

61

96

Private debt securities

World GDP

Bank assets

6%

5%

3%

financial market segments, the size of SWFs isstill limited

― Despite being more than twice the size of thehedge fund business…

30

34

41

54

P blic debt sec rities

Stock market capitalisation

HNWI assets

Private debt securities

10%

9%

7%

6%

―… SWF assets make up less than 1/2 ofglobal foreign exchange reserves …

―… less than 1/6 of global pension assets,21

22

30

Insurance companies

Investment funds

Public debt securities

14%

14%

10%

g p ,around 1/7 of global investment funds andinsurance assets …

―… less than 1/10 of global stock marketit li ti

4

6

19

Public pension reserve funds

Reserves ex gold

Pension funds

70%

47%

16%

capitalisation…

―… and only 3% of bank assets worldwide

► This aggregate comparison, however, cannot

1

3

0 50 100

Hedge funds

SWF

226%

100%

detract from their importance in individual –often high-profile – investment transactions Source: DB Research


Agenda

I d t i11

g

Industry overview11


Growth prospects33

Investment trends44


Policy issues66


SWFs affected by sudden erosion of revenues…22

y

Reserves growth losing steam Oil price decline

45

Foreign exchange reserves excl. gold in SDR tr (left), and monthly rate of change in % (right)

30160Oil price, monthly % change (right)Oil price, monthly % change (right)Oil price USD (left)

Spot oil price, Brent, USD (left) and monthly change (right)

2

34

10

20

100

120

140Oil price, USD (left)

0

1

2

3

-10

0

60

80

100

-1

0

1 Reserves, monthly % change (right)Reserves, monthly % change (right)Reserves in SDR tr (left)

-30

-20

20

40

-2004 05 06 07 08

-40097 99 01 03 05 07

Source: DB Research Source: DB Research


… and decline of book value of investment portfolios22

p

4 0

Decline of SWF portfolio valuesEstimated values of assets for stylised portfolio distribution in USD tr

► Revenue erosion

― Current account surpluses of parent countries ofmajor SWFs have narrowed as trade surpluses

3,5

4,0 3.6

3.0

ajo S s a e a o ed as ade su p usesdecline, …

―… and dramatically diminished oil and othercommodity prices reduce revenues from sales of

t l

2,5

3,0

Equity

Equity

-45%natural resources …

― ... leading to a visibly decelerated accumulation offoreign exchange reserves

1,5

2,0

dBonds-18%

► Decline of portfolio book value

― As for other institutional investors, mark-to-marketvalues of SWF portfolios likely to have sufferedduring financial crisis

0 5

1,0

Bonds

R l

Bondsduring financial crisis

― Typical equity portfolios held by SWFs may havelost 45% between end-2007 and early 2009,reducing overall SWF portfolios by around 18%

0,0

0,5

End-2007 Early 2009

Liquidity

Real estate

Liquidity

Real estateg p y

― Additional changes in portfolio values may resultfrom price variations in other asset classes

― Overall, such changes in portfolio values have –Overall, such changes in portfolio values havewith very few exceptions – not been realised so far,with SWFs holding on to their investments

Source: DB Research


Agenda

I d t i11

g

Industry overview11


Growth prospects33

Investment trends44


Policy issues66


Still, growth prospects in the long run…33

, g p p g

► Long-term prospects for SWFs arenevertheless positive, on the whole

SWF asset growthScenarios for the development of assets managed by SWFs based on past foreign

― Past performance of foreign exchangereserves – as a key indicator for liquidity thatcan be allocated to SWFs by parentgovernments – suggests that, in future,

12Actual assets under managementMain scenario

managed by SWFs, based on past foreign exchange reserves growth, USD tr, 2006-2019

governments suggests that, in future,funds available for sovereign savings willcontinue to mount

► In 10 years, total assets under SWF8

10

Main scenarioCAGR (5Y), p=0.05CAGR (10Y), p=0.15CAGR (30Y), p=0.60Zero growth, p=0.20

7 trmanagement are likely to amount to USD 7 tr,more than twice the volume of today

► Given the volatility in commodities and assetmarkets other scenarios are conceivable and

6

8 7 tr

markets, other scenarios are conceivable andthe development of asset volumes is subject tosubstantial uncertainties

2

4 3 tr

0

2

06 07 08 09 10 11 12 13 14 15 16 17 18 1906 07 08 09 10 11 12 13 14 15 16 17 18 19

Source: DB Research


… depending on the future of trade and capital flows33

p g p

► Underlying SWF growth potential is contingentupon the future of globalisation

Global imbalancesCurrent account balances, USD bn

― Should current account balances resumetheir recent trend of widening deficits in theUS and strongly growing surpluses in theEMs then fundamentals for SWF

1,500

OPEC & RUJPCNEMs, then fundamentals for SWF

development remain strong

― If significant reductions in current accountbalances occur, i.e. especially trade activities

1,000CNDEAsiaUS

, p yremain subdued for a longer while, thenSWF inflows are set to remain clearly belowthe levels seen in the recent past

► A lt SWF ti l l iti t 0

500

► As a result, SWFs particularly sensitive toglobal macro risks

―Macroeconomic risks: Exchange ratemovements commodity price changes trade

-500

0

movements, commodity price changes, tradeand capital flows

― Global political risks: Potential protectionismin recipient countries, political climate

-1,0002000 2002 2004 2006 2008 2010F

between governments2000 2002 2004 2006 2008 2010F

Source: DB Research


Agenda

Industry overview11

g

y1122 Impact of economic crisis

Growth prospects33

Investment trends44

SWF investment transactions4.14.1

4 24 2 Size and shares of SWF stakes4.24.2

SWFs and the financial industry 4.34.3

SWF disinvestments55Policy issues66


SWF investments reflect fund inflows … and their decline4.14.1

► For 1995 to 2009 YTD, publicly reportedinvestment transactions by sovereign

Sovereign investments over timeCompleted investment transactions by state-

investment entities in publicly listedcompanies amount to USD 185 bn

► 2004 to 2008 represent the heydays70

sponsored investment vehicles, USD bn

― Strong overall acceleration of globalinvestments especially across EU, Asia andalso US

2007 d 2008 l d i b

58

50

60

― 2007 and 2008 volumes driven byinvestments in financial sector, especially inUS, UK and CH

► First evidence of activities in crisis

44

3530

40

► First evidence of activities in crisisenvironment suggests sharp decline

― Investments well over 50% down from 2008levels 19

20

― No more investments in financial sector

― Some funds have publicly announced amoratorium on overseas investments until

10810

4

1210100

10

09YTD07050301999795further notice, including QIA, ADIA The data presented on this page are based on transactions between 1995 and June 2009 as

reported by Dealogic involving at least one state-sponsored investor on the acquirer side. Thereported transactions are likely to entail only a fraction of the transactions de facto undertaken bysuch vehicles, many of which are not publicly disclosed. The data presented here shouldtherefore be understood as tentative indicators of broad trends.

09YTD07050301999795


Asia and Middle East are busiest investors4.14.1

► As homes to the largest SWFs worldwide,Asian and Middle Eastern economies are theorigin of most SWF transactions

Sovereign investments by domicile of investorC l t d i t t t ti b t torigin of most SWF transactions

― 43% from Asia

― 29% from Middle East

Completed investment transactions by state-sponsored investment vehicles, by domicile of investor, USD bn and % of total, 1995 – 2009 YTD

― Only 18% from other economiesAmericas

84%

Others5

3%

Africa2

1%RU0

0%

Asia79

43%EU116%

CN26

14%

Middle East53

29%The data presented on this page are based on transactions between 1995 and June 2009 asreported by Dealogic involving at least one state-sponsored investor on the acquirer side. Thereported transactions are likely to entail only a fraction of the transactions de facto undertaken bysuch vehicles, many of which are not publicly disclosed. The data presented here shouldtherefore be understood as tentative indicators of broad trends.

29%


Asia and Europe remain preferred targets for investments4.14.1

p p g

► Asia and the EU remain the preferred targetsfor SWF investments

Sovereign investments by target region

― 31% to Asia

― 30% to EU economies

20% t US

regionCompleted investment transactions by state-sponsored investment vehicles, by domicile of target, USD bn and % of total

― 20% to US

► Shares reflect…

―… prospect of strong long-term growth AsiaJP3

2%

Africa2

1%

RU0

0%

Others22

12%

potential of Asian economies

―… balanced growth expectations for EU

―… desire to currency-diversify out of USD,

5831%

Middle East

74%

2%

y y ,into EUR

US

4%

EU57

30%

3720%

The data presented on this page are based on transactions between 1995 and June 2009 asreported by Dealogic involving at least one state-sponsored investor on the acquirer side. Thereported transactions are likely to entail only a fraction of the transactions de facto undertaken bysuch vehicles, many of which are not publicly disclosed. The data presented here shouldtherefore be understood as tentative indicators of broad trends.

30%


EU investments: UK on top owing to bank participations4.14.1

p g p p

► UK tops the league of EU recipient economies,largely reflecting strong inflows into UK’s

Sovereign investments in EU member states

financial sector

― UK 49% share in SWF EU investments

► Continental EU shows balanced distribution of 28 0UK

member statesCompleted investment transactions by state-sponsored investment vehicles in the EU, 1995 – 2009 YTD, by member state, USD bn and % of EU total

SWF investments among largest economies

― DE 15%

― FR 12%6%

12%

15%

49%

3,46,6

8,228,0

NLFRDEUK

FR 12%

― NL 6%

― IT 4%2%

2%

4%

4%

1,01,1

2,42,5

SEESDKIT

1%

1%

1%

2%

0,50,50,81,0

GRFI

ATPT

0%

0%

0%

0,00,10,3

,

SKBUMT


0 0 0 10 10 20 30


Global investments: Strong bias towards financial targets4.14.1

g g

► Sectoral composition of SWF investmentsreflects huge investments in financial sector in2007 d 2008

Sovereign investments by target sector

2007 and 2008

― 42% of all SWF investments

► Investments in manufacturing industries,42%Finance 78 0Finance

Completed investment transactions by state-sponsored investment vehicles, 1995 – 2009 YTD, by target sector,USD bn and % of global total

services, real estate and commoditiesdistributed fairly evenly

― 14% manufacturing industries13%

14%

42%

Services

Industry

Finance

23 9

25,1

78,0

Services

Industry

Finance

― 13% services

― 11% real estate

― 10% commodities10%

11%

13%

C diti

Real estate

Services

17 9

21,2

23,9

C diti

Real estate

Services

%

9%

10%

Technology

Commodities

16,6

17,9

Technology

Commodities

0%

1%

Others

Defence

0,3

2,1

Others

Defence


0 0,1 0,2 0,3 0,4 0,50 20 40 60 80 100


EU investments: More balanced sectoral distribution 4.14.1

► SWF investments in UK financial sector raisefinance share to 41%

Sovereign investments in the EU by target sectorCompleted investment transactions by state-sponsored► Other industries more evenly distributed

► Investments in industries that are often citedas particularly relevant to public security andorder play a negligible role in investment

41%8 23,0Finance


order play a negligible role in investmentpatterns

― Defence 4%

T h l 1%15%

18%

6

7

8,7

10,3

Services

Industry

― Technology 1%

10%

11%

4

5

5,6

6,2

Real estate

Commodities

1%

4%

2

3

0,7

2,1

Technology

Defence

0%

-0,1 0,1 0,3 0,5

10,0

0 5 10 15 20 25

Others



US investments: Heavy bias towards finance visible4.14.1

y► Large investments in US banking sector in

2007 dominate US inward SWF investmentsSovereign investments in the US by target sectorCompleted investment transactions by state-sponsored― 59% finance

► Other industries much less balanced than inEU 59%8 21,7Finance

Completed investment transactions by state-sponsored investment vehicles, 1995 –2009 YTD, by target sector,USD bn and % of global total

― 18% real estate

― 10% technology

― 3% manufacturing industries 10%

18%

6

7

3,6

6,7

Technology

Real estate

3% manufacturing industries

2%

3%

4

5

0,8

1,0

Defence

Industry

1%

1%

2

3

0,5

0,5

Commodities

Services

0%

-0,1 0,1 0,3 0,5 0,7

10,0

0 10 20 30

Others



Asia investments: Balanced approach4.14.1

pp► Investments in Asia are very balanced by

international and US standardsSovereign investments in Asia by target sectorCompleted investment transactions by state-sponsored― Finance makes up only 15% of total

investments

► Industry is prime target in Asia 35%8 20,4Industry


― 35% manufacturing industries

― 18% technology

― 17% commodities 17%

18%

6

7

9,6

10,4

Commodities

Technology

17% commodities

9%

15%

4

5

5,1

8,9

Real estate

Finance

1%

5%

2

3

0,3

3,0

Others

Services

0%

0 0,1 0,2 0,3 0,4

10,0

0 10 20 30

Defence



Agenda

Industry overview11

g


Growth prospects33

Investment trends44


Size and shares of SWF stakes4.24.2

SWFs and the financial industry4.34.3



Global investments: Large-scale investments dominate4.24.2

g► Publicly reported sovereign investments in

companies tend to be large transactions…Sovereign investments by size of individual transactions C l t d i t t t ti b t t d► … with 68% of all deals valued at USD 1 bn or

higher

― 9% are USD 5 bn or higher>50 <50

Completed investment transactions by state-sponsored investment vehicles, by size of transaction, USD m and % of total, 1995 – 2009 YTD

― 28% are between USD 2.5 bn and USD 5 bn

― 31% between USD 1 bn and USD 2.5 bn

► No evidence exists on the size of undisclosed

>5,00016.647

9%>10027.20215%

>502.8252%

2.3381%

► No evidence exists on the size of undisclosedinvestments

― The publicly reported transactions analysedhere are likely to contain a significant bias >2,500

52.602>500

26 277towards large transactions

― Undisclosed transactions are probably of asignificantly smaller size

28%26.27714%

Total share with investment volume

> USD 1 bn:68%

>1,00057.19731%

68%



Global investments: Controlling stakes not uncommon4.24.2

g► Sovereign investments in listed companies

tend to lead to controlling stakes in the targetentities

Sovereign investments by size of acquired stakes

entities

― 62% of all deals lead to final stakes of 20%or higher

1/4 f ll d l l d t 100% i iti

Completed investment transactions by state-sponsored investment vehicles, by size of stake acquired in individual enterprises per transaction, by number of transactions and % of total, 1995 – 2009 YTD

― 1/4 of all deals lead to 100% acquisitions

► No evidence exists on the size of undisclosedinvestments 100%

1135%-9%72

1%-4.99%358%

<1%3

1%

― Norway’s NBIM alone, for example, owning0.77% of global equities, holds a total of7,900 different securities by 2,200 issuersworldwide. Individual equity investments are

25%7216%

limited to 10% stakes per companystatutorily. The vast majority of NBIM’s equityinvestments are understood to be lower than2% stakes. Only 195 companies worldwide

% O

80%-99%133%

10%-19%60

13%

Total share leading to > 20%

stake:62%

have a stake higher than 2%. Only 4 have astake higher than 5%. The largest NBIMshareholding is reported to amount to 8.7%.

50%-79%52

11%20%-49%10323%

13%



Agenda

Industry overview11

g


Growth prospects33

Investment trends44


4 24 2 Size and shares of SWF stakes4.24.2

SWFs and the financial industry 4.34.3



SWFs and global financial industry – massive investments…

4.34.3g y

► SWFs have become an important and sought-after source of capital for banks worldwide,

i ll d i th fi i l i i

Sovereign investments in the financial industry over time

especially during the financial crisis

― Total gross investments by SWFs and state-sponsored investors since 1995 in the globalbanking industry amount to USD 113 bn 30

Completed investment transactions by state-sponsored investment vehicles in the financial sector globally, USD bn, 1995 – 2009 YTD

banking industry amount to USD 113 bn

― Investments in the financial industry at largeamount to USD 137 bn (includes non-bankfinancial institutions)

28

22

25

― Publicly reported individual investmentsamount to USD 78 bn

► Beyond the immediate importance of SWF

22

14

15

20

capital contributions in recent months, thevolume of SWF investments remains limited

― The USD 113 bn of SWF investments inglobal banks make up 2 6% of USD 4 3 tr of

14

5

10

global banks make up 2.6% of USD 4.3 tr ofglobal stock market capitalisation of banks 3

441001000000

5

090807060504030201009998979695The data presented on this page are based on transactions between 1995 and June 2009 asreported by Dealogic involving at least one state-sponsored investor on the acquirer side. Thereported transactions are likely to entail only a fraction of the transactions de facto undertaken bysuch vehicles, many of which are not publicly disclosed. The data presented here shouldtherefore be understood as tentative indicators of broad trends.


… have led to high stakes in prominent institutions4.34.3

g p► 7 SWFs are large or single largest shareholders in the most prominent Wall Street banks and

some important European banks

► Dubai state sponsored investors are controlling shareholders in the global stock exchange► Dubai state-sponsored investors are controlling shareholders in the global stock-exchangelandscape

Concentration of shareholdings ― major SWF interests in financial firmsg j

Funds Target Country Share (%) Funds Target Country Share

(%)

Blackstone Group US 9.9 Bombay Stock Exchange IN 4.0China Development Bank CN NA Deutsche Bank DE 2.2Morgan Stanley US 9 9 Euronext NL 3 5C

hina

CIC

)

al.)

Morgan Stanley US 9.9 Euronext NL 3.5VISA Inc. US NA Hellenic Exchange GR 3.0

HSBC Holdings Plc. GB 0.5Bank of China CN 15.5 ICICI Bank Ltd. IN 2.9Barclays Bank GB 3.1 London Stock Exchange GB 28.0China Construction Bank CN 5.1 Nasdaq OMX Group US 43.6Citigroup US 11.1 Och-Ziff Capital Management Group US 51.4

C (Cpo

re

m

asek

)

UA

E, D

ubai

FG, D

IFC

, DIF

X e

t

g p 11.1 p g p 51.4ICICI Bank Ltd. IN 9.6 Perella Weinberg Partners LC US 10.0Merrill Lynch US 9.9 Standard Chartered Bank Ltd. GB 2.7Standard Chartered Bank Ltd. GB 20.0UBS CH 9.0 AP Alternative Asset LP US 40.0

Apollo Management US 40.0

th

ea

C) Merrill Lynch US 7.4 Carlyle Group US 7.5

Sing

a(G

IC, T

e (D

, Abu

ha

bi

A e

t al.)

Sout

Kor

e(K

IC

Citigroup US 4.9Barclays Bank GB 8.9Credit Suisse CH 10.0 Citigroup US 6.0London Stock Exchange GB 15.1 Merrill Lynch US 5.7

UA

E Dh

(AD

IA

Qat

ar

(QIA

)

Kuw

ait

(KIA

)

The data presented on this page are based on transactions between 1995 and June 2009 as reported by Dealogic involving at least one state-sponsored investor on the acquirer side. The reported transactionsare likely to entail only a fraction of the transactions de facto undertaken by such vehicles, many of which are not publicly disclosed. The data presented here should therefore be understood as tentative indicatorsof broad trends.

Note: Stakes by state-sponsored investors in financial firms worldwide at mid-June 08, country of domicile of investment target, % share in target. Largest investments only, no complete list.

K


Substantial imputed losses – which have remained unrealised

4.34.3p

► At the point in time they were undertaken, SWFinvestments in the banking sector appeared

Unrealised losses on SWFinvestments in the banking sector

economically reasonable

― For a detailed analysis see “SWFs andforeign investment policies – an update”,Deutsche Bank Research Current Issues ys Su

isse

Lync

h

up Stan

ley

he B

ank

gImputed, unrealised losses on investments in individual banks since the acquisition of the respective stake, %

Deutsche Bank Research, Current Issues,October 22, 2008

► Subsequently, share prices of the bankstargeted by SWFs fell dramatically -17 -12

0

Bar

clay

Cre

dit S

Mer

rill L

Citi

grou

Mor

gan

UB

S

Deu

tsc h

g y y

―Maximum imputed losses on the investmentsat times amounted to between 60% and 96%against the prices at which the shares hadi iti ll b i d

-38

-5960

-40

-20

initially been acquired

► In recent months, bank share prices haverecovered, somewhat mitigating the imputedunrealised losses

-78-87

-71

-84

-60

-85 -82 -84 -85-100

-80

-60

unrealised losses

― As of June 5, 2009, imputed unrealisedlosses had narrowed somewhat to between12% and 87%

-96

-120

-100

Current imputed loss (share price on June 5, 09 against price on day of purchase, in %)Highest imputed loss (lowest share price since acquisition of sharesHighest imputed loss (lowest share price since acquisition of shares against price on day of purchase, in %)

Source: DB Research


Despite isolated asset sales, shareholdings expected to remain stable

4.34.3

► SWFs are likely to hold on to their shareholdings in major banks, as they will try to keep final realisedlosses at a minimum, and are in a more comfortable position to wait for improved market conditionsthan their private-sector counterparts― So far sale of financial-sector assets by SWFs very limited and mainly caused by isolated cases (e gSo far, sale of financial sector assets by SWFs very limited, and mainly caused by isolated cases (e.g.

privatisation-related transactions in PRC )―Without privatisation transactions, total volume of financial-sector asset sales by SWFs amounts to

USD 12 bn since 1995, i.e. 1/10th of banking-sector investments in that period

►► Nevertheless, individual disinvestments can occur in order to restructure portfolios or create liquidity

Major divestments by SWFsTransaction

DateSta-tus1)

Transaction volume (USD m)

Aug 97 C Burgan Bank SAK KW Kuwait Investment Authority KW Kuwait Projects Co (Holding) KSCC - KIPCO

KW 158

Jun 00 C Arab African Investment Bank EG Kuwait Investment Authority KW Market Purchase NA NAJun 05 C China Construction Bank Corp. CN Central Huijin Investment Co Ltd. CN Bank of America Corp US 3,000

AcquirorDivestorTarget

China Construction Bank Corp. j p ,Jun 05 C China Construction Bank Corp. CN Central Huijin Investment Co Ltd. CN Temasek Holdings (Pte) Ltd SG 2,466Feb 07 C Vietnam Investment Fund Ltd. SG Abu Dhabi Investment Authority AE Keppel Corp Ltd SG NAFeb 08 C OMX AB SE Qatar Investment Authority QA Borse Dubai Ltd AE 491Mrz 08 C Merrill Lynch & Co Inc. US Temasek Holdings (Pte) Ltd. SG Hana Bank KR 50Mrz 08 C London Stock Exchange plc. UK Qatar Investment Authority QA Market Purchase UK 664Mrz 08 C Bank of Communications Co Ltd. CN Central Huijin Investment Co Ltd. CN People's Republic of China CN NAMai 08 C China Construction Bank Corp. CN Central Huijin Investment Co Ltd. CN Bank of America Corp US 1,864Jun 08 C PT Lippo Bank Tbk. ID Khazanah Holdings Bhd MY Bumiputra-Commerce Holdings Bhd MY 634Nov 08 C Lotus India Asset Management Co. IN Temasek Holdings (Pte) Ltd. SG Religare Enterprises Ltd IN NANov 08 C China Construction Bank Corp. CN Central Huijin Investment Co Ltd. CN Bank of America Corp US 7,058Feb 09 D BTA Bank AK KZ Samruk Kazyna National Welfare Fund KZ Savings Bank of the Russian Federation RU 2,634Mrz 09 C Bank of America Corp. US Temasek Holdings (Pte) Ltd. SG Market Purchase US 1,467

The data presented on this page are based on transactions between 1995 and June 2009 as reported by Dealogic involving at least one state-sponsored as the seller. The reported transactions are likely to entailonly a fraction of the transactions de facto undertaken by such vehicles, many of which are not publicly disclosed. The data presented here should therefore be understood as tentative indicators of broad trends.

Apr 09 C Barclays plc. UK Qatar Investment Authority QA Market Purchase UK 102Jun 09 P Barclays plc. UK International Petroleum Investment Co. AE Market Purchase UK 5,641

1) C=Completed. D=Preliminary discussion. P=Pending.


Agenda

I d t i11

g

Industry overview11


Growth prospects33

Investment trends44


Policy issues66


Asset sales have risen in line with investments55

► Di i t t b t t d SWF asset sales over time► Disinvestments by state-sponsoredinvestors have risen in line with massiveincreases in asset purchases

► However, asset sales have amounted to 25

SWF asset sales over time Completed divestment transactions by state-sponsored investment vehicles globally, USD bn, 1995 – 2009 YTD

► However, asset sales have amounted tomerely USD 46 bn since 1995, and thusrepresent a fraction of investmentvolumes

19

20

11 10

15

11

6

45 5

00,1000000,20,400

090807060504030201009998979695

The data presented on this page are based on transactions between 1995 and June 2009 asreported by Dealogic involving at least one state-sponsored as the seller. The reportedtransactions are likely to entail only a fraction of the transactions de facto undertaken by suchvehicles, many of which are not publicly disclosed. The data presented here should therefore beunderstood as tentative indicators of broad trends.


Foreign non-state investors are primary buyers55

g p y y

► Majority of SWF assets, if sold, get privatised

Vast majority of assets owned by state

SWF asset sale typologyAsset sales by sovereign investors (SI) by type of― Vast majority of assets owned by state-

sponsored investors are sold on to privateinvestors abroad

― 56% of state-owned assets are sold on to SI-to-non-

Asset sales by sovereign investors (SI) by type of transaction, USD bn and % of total, 1995 – 2009 YTD

foreign non-state investors

― 7% of the assets are sold to domesticinvestors

Market purchases

922%

SI, domestic

37%

► Limited circulation of assets among stateinvestors

― Only a total of 15% of assets sold by Total SI-to-sovereign investors are purchased by otherstate entities

― At 7%, assets are passed on to sovereigninvestors in foreign jurisdictions only in

SI-to-SI, cross-border

37%

Total SI-to-SI: 15%

non-SI: 63%

investors in foreign jurisdictions only inexceptional cases

― 8% are transferred to other state-sponsoredinvestment vehicles domestically

7%

SI-to-SI, domestic

38%

SI-to-non-SI, foreign

2356%

yThe data presented on this page are based on transactions between 1995 and June 2009 asreported by Dealogic involving at least one state-sponsored as the seller. The reportedtransactions are likely to entail only a fraction of the transactions de facto undertaken by suchvehicles, many of which are not publicly disclosed. The data presented here should therefore beunderstood as tentative indicators of broad trends.


Agenda

I d t i11

g

Industry overview11


Growth prospects33

Investment trends44


Policy issues66


Santiago Principles: SWFs have delivered66

g p► SWFs have delivered a set of Generally Accepted

Principles and Practices for Sovereign WealthFunds

5

Defining corporate objectivesLocus of objective-setting for SWF investment strategies, % of respondents

SWF corporate objectives% of respondents

SWF governance

► Santiago Principles (GAPP) as non-binding code

― Commitment to financial, non-political objectives― Transparency, incl. details on the use of voting 55

40

5

21

14

a spa e cy, c de a s o e use o o grights, risk management, use of financial leverage

― Governance, organisational structures andprocesses, incl. commitment to separation of fundmanagement and government

55

65

Long-term savings, stabilisationFuture pension liabilitiesmanagement and government

―Monitoring of GAPP by Standing Group of SWFs

► Policy issues going forward

SWF board Government OtherFuture pension liabilitiesLong-term returns

Composition of governing bodies, % of respondents

Political involvement

16

5

Political accountabilityAccountability to legislature, % of respondents

― Adherence: Will SWFs apply the GAPP? Will theGAPP become a seal of quality for SWFs? Willthis incentivise them to ensure compliance?

Scope Will parent go ernments appl similar

3632

37

21

16

― Scope: Will parent governments apply similarquality standards to other forms of state-sponsored investors, including pension funds,state-owned enterprises and other vehicles? Arethere incentives for parent governments to

32Government officials with majority representation

Government officials with minority representation

21MoF reports to legislatureCEO reports to legislatureNot accountable to legislatureAudit by legislaturethere incentives for parent governments to

channel politically controversial acquisitionsthrough vehicles not subject to the GAPP?

representation Audit by legislature

Source: IWG


Cross-border investments and political momentum behind 66

pcapital account liberalisation is weakening

Foreign direct investment collapse Global capital account openness

14,02.500FDI inward stock, USD tr (right)

Foreign direct investment collapse in wake of crisisOECD FDI stocks and flows

Global capital account opennessIndex for openness of capital accounts, based on KAOPEN/Chinn-Ito Index, maximum capitalaccount openness = 100

10 0

12,02.000

, ( g )FDI outward stock, USD tr (right)FDI inward flows, USD bn (left)FDI outward flows, USD bn (left)

80

90

100Industrial economiesEmerging markets

8,0

10,0

1.50060

70

80 a etsLess developed economies

4,0

6,01.000

30

40

50

0 0

2,0

0

500

10

20

0,0000 01 02 03 04 05 06 07 08

01970 1974 1978 1982 1986 1990 1994 1998 2002 2006

Source: DB Research Source: DB Research


Recipient economies: Need to ensure open markets66

p p

► Criteria for optimal investment policies in recipientcountries

FDI regulatory restrictivenessOECD regulatory restrictiveness index

― Open markets― Symmetry in open market access― Equal treatment of all foreign investors

RU

IN

CN

(0=open, 1=closed), end-06

― Proportionality of policy measures― Transparency of policy rules―Minimal political intervention OECD

CH

BR

RU

― International cooperation and standards► OECD multilateral initiatives on securing open

markets at international level US

KR

NO

― OECD Guidance on Sovereign Wealth Funds, Oct2008

― OECD Freedom of Investment ProjectIT

FR

JP

CL

► National investment policies have been refined inrecent years, but no systematic protectionist revisionof investment rules in response to financial andeconomic crisis so far 0 0 0 2 0 3 0 5

DE

UK

IT

0.0 0.2 0.3 0.5

Source: OECD


Recent national policies – no systematic protectionism66

► 1988 Exon Florio CFIUS review ► 2008 L F i I t t

p y p

United States Russia

► 1988 Exon-Florio, CFIUS review► 2007-2008 reforms (FINSA)

― Extended range of relevant transactions― Broadened definition of review criterion

► I l ti l ti

► 2008 Law on Foreign Investments― Specification of 42 strategic sectors― Threshold values for foreign shares in

Russian companies► Additional general or sectoral rules► Implementing regulations

― Lower trigger value for CFIUS― Increases in reporting requirements

► Additional general or sectoral rules

► 1975 Foreign Investment Review Board ► Revised Foreign Trade Act

Australia Germany

► 1975 Foreign Investment Review Board► Broad criteria

― National interest, implications for nationalsecurity, economic development orgovernment policies

►

► Revised Foreign Trade Act► Establishment of review process► Investments originating outside EU or

EFTA― Stake in listed or unlisted German company► 2008 Principles for State Investors

― Operational independence from government― Commercial objectives― Adequate, transparent supervision

Stake in listed or unlisted German companyof more than 25%

― Criterion: Country’s security or public order― No sectoral limitation

― Impact on Australian business


Steffen KernDeutsche Bank ResearchDeutsche Bank AGTheodor-Heuss-Allee 70 DE–60486 Frankfurt am Main

T +49 69 910 31889E [email protected] www.dbresearch.com

© Copyright 2009 Deutsche Bank AG DB Research D-60262 Frankfurt am Main Germany All rights reserved When quoting please cite “Deutsche Bank Research” The© Copyright 2009. Deutsche Bank AG, DB Research, D 60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite Deutsche Bank Research . The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made. In Germany this information is approved and/or communicated by Deutsche Bank AG Frankfurt, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht. In the United Kingdom this information is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange regulated by the Financial Services g pp y , g g yAuthority for the conduct of investment business in the UK. This information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche Securities Limited, Tokyo Branch. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product.


swf db research

Documents