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THE SIGNIFICANCE OF PROPERTY IN SOVEREIGN WEALTH FUNDS

THE SIGNIFICANCE OF PROPERTY IN SOVEREIGN WEALTH FUNDS. GRAEME NEWELL University of Western Sydney and ANDREW BAUM University of Reading. June 2009. SWF CONTEXT. Definition of SWF; criteria Types ; purpose; funding sources natural resource reserves goods/services reserves

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THE SIGNIFICANCE OF PROPERTY IN SOVEREIGN WEALTH FUNDS

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  1. THE SIGNIFICANCE OF PROPERTY IN SOVEREIGN WEALTH FUNDS GRAEME NEWELL University of Western Sydney and ANDREW BAUM University of Reading June 2009

  2. SWF 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

  3. SWF CONTEXT • Strategies; management • Transparency; disclosure -asset allocation?? • Concerns re: SWF activities • Santiago Principles • Differences re: SWFs

  4. 4th Quarter 2008 LMTI ratings

  5. PURPOSE OF PAPER • SWF activity : 2000-08 • Property @ SWF activity: 2000-08 • Case studies: major SWFs(9) • property activities • Future development of SWFs • property issues

  6. SWF 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

  7. SWF 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

  8. SWF 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%

  9. 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

  10. 2007 : 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

  11. 2008: 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)

  12. GIC • 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

  13. ADIA • 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.

  14. DUBAI WORLD • Property and tourism • SWEs • Nakheel – Istithmar World • Leisure Corp – Limitless – DP World • MGM Mirage stake

  15. MUBADALA 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

  16. OTHER 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

  17. OTHER SWFs • 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

  18. SWF 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

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