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THE SIGNIFICANCE OF PROPERTY IN SOVEREIGN WEALTH FUNDS GRAEME NEWELL University of Western Sydney and ANDREW BAUM University of Reading June 2009
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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
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SWF CONTEXT Strategies; management Transparency; disclosure -asset allocation?? Concerns re: SWF activities Santiago Principles Differences re: SWFs
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4th Quarter 2008 LMTI ratings
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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
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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
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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
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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%
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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
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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
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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)
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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
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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.
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DUBAI WORLD Property and tourism SWEs – Nakheel – Istithmar World – Leisure Corp – Limitless – DP World MGM Mirage stake
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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
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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
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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 SWFs
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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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