THE SIGNIFICANCE OF THE SIGNIFICANCE OF PROPERTY IN PROPERTY IN

SOVEREIGN WEALTH SOVEREIGN WEALTH FUNDSFUNDS

GRAEME NEWELLUniversity of Western SydneyandANDREW BAUMUniversity of Reading

June 2009

SWF CONTEXTSWF CONTEXT Definition of SWF; criteria Types ; purpose; funding sources

– natural resource reserves – goods/services reserves– pension fund reserves

Development of SWFs-1950s - 1970s/80s -1990s -2000+

SWF market size ??? Major SWFs ; regions; growth; significance

-ADIA - GIC -GPF -KIA-CIC -Temasek -DIC - QIA

SWF CONTEXTSWF CONTEXT

Strategies; management Transparency; disclosure

-asset allocation?? Concerns re: SWF activities Santiago Principles Differences re: SWFs

PURPOSE OF PAPERPURPOSE OF PAPER

SWF activity : 2000-08 Property @ SWF activity: 2000-08 Case studies: major SWFs(9)

– property activities Future development of SWFs

– property issues

SWF INFORMATION SOURCESSWF INFORMATION SOURCES

Sovereign Wealth Fund Institute Monitor SWF transactions :2000-08

– # >1150 - $ > $ 250 billion Real Capital Analytics : 2007-08

-Global property transactions– # > 57,000 - $ > $ 1.7 trillion

SWF websites

SWF ACTIVITY : 2000-08SWF ACTIVITY : 2000-08

Major new SWFs– CIC - NWF - QIA– Dubai World

Move to higher risk investments 2000-08 activity

– #, $, players– sectors– $ flows– OECD Vs emerging markets– minority Vs majority stakes

SWF ACTIVITY: 2008SWF ACTIVITY: 2008

# = 175 @ $128bn Q1@$68bn Q2@$12bn Q3@$15bn Q4@$35bn Factors : GFC, falling commodity prices Regions; sectors Impact of financial services, private equity stakes

– GIC, CIC, ADIA, KIA,QIA, Temasek– Citibank, UBS, Merrill Lynch, Carlyle, Blackstone– $45bn @ bank losses

Total losses @ up to $700bn @18-25% assets Strategic shift : domestic focus

– Q1: 88%/12% – Q4: 57%/43%

SWF PROPERTY ACTIVITY :2000-08 2000-08: # @18% (#2); $ @19% (#2) Typically 8-10% property allocation Q4 :2008: # = 12 @ $5.3bn Strategies re: property ; sophisticated

– direct – REITs –JV– co-investment – clubs – private equity– equity @ r.e. co - debt finance – capital commitments @ PD

Major property players– GIC –ADIA – KIA –QIA– Temasek – Dubai World – Mubadala

Role of SWEs and holding companies

2007 : PROPERTY @ SWFs2007 : PROPERTY @ SWFs

Major players– Dubai World (#14) @ $5.5bn– GIC (#21) @ $3.5bn– Istithmar World (#44) @$1.3B

Major deals– Dubai World (#1) ~ US development site– GIC (#18) ~ UK retail– GIC (#21) ~ Australia retail– GIC (#34) ~ UK office

2008: PROPERTY @ SWFs2008: PROPERTY @ SWFs

Major players– Dubai World (#26) @$2.2bn– Qatari Real Estate (#31) @$1.9bn– GIC (#39) @ $1.7bn– Temasek (#41), ADIA (#74), KIA(#98)

Major deals (often via JV)– KIA/QIA (#1) ~ GM Building, NY– Qatari Diar RE (#4) ~ Chelsea Barracks, London– KIA (#26) ~ Willis Building, London– ADIA (#28) ~ Chrysler Building, NY– Dubai World (#34), GIC (#35), Dubai World (#48)

GICGIC

Property section @1982 Property @ 10% ; $ = ??? ; sophisticated Top 10 ; > 200 properties; > 30 countries > 150 staff @ 7 offices globally Direct, indirect, JV, debt, private equity Stakes @ r.e. companies

– British Land – Brixton – Great Portland– GPT – Liberty International

Role of Temasek re: property– separate SWF

ADIAADIA

Established 1976 Property @ 5-8% Direct (65%), private equity (30%), listed (5%) Property SWEs

– ADICo – Tasameen –Tamweeiwen Europe

Bill Schwab: global head of property :2009 Chrysler Building @ $800M @ June ‘08 New funds @ $40-$50bn p.a.

DUBAI WORLDDUBAI WORLD

Property and tourism SWEs

– Nakheel – Istithmar World– Leisure Corp – Limitless – DP World

MGM Mirage stake

MUBADALA DEVELOPMENT CORPMUBADALA DEVELOPMENT CORP

Abu Dhabi @ 2002 Property development ✓ Capitala : 51% JV John Buck International : 51% JV Kor Hotels : 50% Abu Dhabi developments

– MGM Grand – Mina Zayed Waterfront– Rosewood Abu Dhabi – Somarah Square– uni, diabetes centre, cancer clinic

Malaysia development– $1.8bn JV -3K acre resort

OTHER SWFsOTHER SWFs

CIC– 2007 -property activities– reorganised investment departments @ 2009 – future role @ property✓✓

Norway GPF– 1990; equities @ 45%; bonds @ 55%– 2008: permitted to invest in direct property– expect 5% property allocation

Alaska Permanent Fund– 1976 - $31 billion– 10% property - >60 properties (US)

KIA– 1953 -property @ 6% - JV activity– SWEs : Kuwait Real Estate Investment Consortium

:St Martins QIA

– 2005 - property ; JV activity– SWEs : Qatari Diar, Delta Commercial Properties

OTHER SWFsOTHER SWFs

SWF FUTURE DEVELOPMENTSSWF FUTURE DEVELOPMENTS Part of global financial markets✓ Sophisticated investment strategies✓ Lessons for newer SWFs Increased transparency and accountability Local focus

– Reinvest in local economy; liquidity– Energy, infrastructure, environment

Role of CIC Revised growth scenarios = $5-6T @ 2012

– Slower growth - Local demands– Passive strategy - Liquidity

Property implications