1. The sources for capital and investment, and market access A role for private capital in meetings infra and energy needs?
Mitchell A. Silk
Symposium on Building the Financial System of the 21st Century: An Agenda for China and the United States
May 19, 2017

2. Backdrop for inquiry
Immense and urgent need for capital investment in US energy and infrastructure
Private capital sources to meet this need
State of China’s private capital markets
Are China’s private capital (equity and debt) a realistic or effective source of capital to fund ODI in, as one sector of many, energy and infra in the US?
If yes, how?
If no, why?
Barriers to growth and market linkage
Regulatory constraints?
Ability to execute?
Depth of markets

3. Demand: Present capital needs
Projection of capital investment needs for the US energy, infrastructure and water sectors
Aggregate : $8.2 trillion
Average annual investment: $455 billion
Source: U.S. Chamber of Commerce, Page 14

4. Supply: US private placement market
$47.1 billion in private debt capital markets financings in 2016
Full Year 2016
Placement Agent
Amt
($mm)
Mkt Share
(%)
Full Year 2015
($m)
Full Year 2014 1
BoA Merrill Lynch
10,354
19.6
11,593
21.3
10,860
21.1 2
JP Morgan
7,136
13.5
6,272
11.5
5,955
11.6 3
Barclays
4,368
8.3
4,329
8.0
RBS
3,803
7.4 4
Citi
3,812
7.2
Goldman Sachs & Co
3,798
7.0
3,499
6.8 5
3,323
6.3
Wells Fargo & Co
3,540
6.5
3,474 6
Mitsubishi UFJ
2,614
4.9
2,812
5.2
Morgan Stanley
2,392
4.7 7
RBC Capital Markets
2,535
4.8
2,627
2,138
4.2 8
2,258
4.3
2,474
4.6
US Bancorp
2,067
4.0 9
1,860
3.5
1,907
HSBC Holdings PLC
2,026
3.9 10
1,822
3.4
Scotia Capital
1,890
1,781 11
National Australian Bank
1,808
National Australian Bank
1,805
3.3
1,682 12
1,726
1,481
2.7
National Australia Bank
1,668
3.2 13
HSBC Holdings PLS
1,330
2.5
1,257
2.3
Societe Generale
1,529
3.0 14
Lloyds Bank
1,108
2.1
1,253
CBA
1,436
2.8 15
Commonwealth Bank of Aus
1,053
2.0
1,169
2.2
1,317
2.6
Total:
47,107
48,207
45,627
Source: Thomson Reuters and RBCCM

5. Supply: Commercial bank debt
$33.8 billion in commercial bank financings in 2016
Source: Thompson Reuters

6. Supply: US private equity

7. Supply: US private equity

8. Supply: US private equity
$141 billion in dry powder available mid-2016

9. Supply: PRC commercial banks in the US
PRC banks have achieved phenomenal growth in the US from
BUT represent on a small slice of the New York market in terms of size and coverage
Not keeping pace with acquisitive nature of home country clients
Foreign bank position in New York 2015
99 New York State licensed branches/agencies
28 Federal licensed branches/agencies
$2 trillion in total assets
PRC commercial bank position in New York
Exponential asset growth from 2010 ($17.3 billion) to 2015 ($130 billion)
751% growth BUT represent only a small fraction of total foreign bank assets in New York

10. Supply: PRC private equity

11. Supply: PRC private equity
$90 billion in dry powder available mid-2016

12. Supply: Depth of PRC investor market Flush with capital: High demand for new and diverse product offerings
A few select figures
PRC’s foreign exchange reserves was at a record high of USD3.03 trillion in 2017
the National Social Security Fund (NSSF), the PRC’s national pension fund, maintained total entrusted assets of $275.7 billion in 2015
capital investments in infrastructure and livelihood improvement by PRC insurance companies were at $239.8bn by the end of 2016
with several of the world’s largest banks by market capitalization, a vast network of branches across the PRC and internationally, and clients forming the core of the pool of investors onshore, PRC commercial banks also present considerable opportunities for PRC inbound and outbound asset management and investment
In 2016, the total assets under management for Greater China based private equity funds reached more than $258 billion, representing approximately an 100% increase from 2012
In 2015, the aggregate capital raised by greater china focused private equity funds was $12.1 billion, representing a 45.74% decrease from 2012

13. Supply: Murky contours
Capital outflows
$725 billion in 2016
$1.7 trillion since 2015 (estimated)
RMB globalization
RMB: The new global currency?
Exponential growth in monthly settlement amounts
Game changer for asset management?

14. Barriers to growth and market linkage
Regulatory constraints
SAFE cross-border capital regulation
Foreign asset manager market access
Co-GP opportunities
CFIUS
Ability to execute: Investment advisory/asset management expertise
Depth of markets
Sourcing
Due diligence
Financial analysis
Investment decision-making
Structuring and documentation
Exit

15. - President and CEO, US Chamber of Commerce
Getting it right
“Chinese participation in US infrastructure would enable the United States to leverage Chinese capital, industrial capacity and infrastructure experiences, while allowing China to help support and capitalize on the coming wave of US infrastructure redevelopment….
… although the opportunities are
significant, achieving them will likely be complex. Chinese
investment in certain sectors
and in certain jurisdictions will prove more challenging than others. Identifying and pursuing potential investments, as well as anticipating challenges, will require planning and patience by Chinese parties and their US counterparts.”
- President and CEO, US Chamber of Commerce
“From International to Interstates: Assessing the Opportunity for Chinese Participation in US Infrastructure”

16. Questions?
These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources.
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