Gaim Presentation by Drosten Fisher of Monitor Group November 16, 2008

Copyright © 2008 Monitor Company Group, L.P. — Confidential — CAMZAD-NED-Prez-Date-CTL 1

Assessing the Risks


Assessing the RisksContents

Overview of SWF Landscape

Methodology of Study

SWF Behavior: The Evidence of Public Transactions (2000-2008q1)

Recent SWF Behavior: 2008q1 vs. 2008q2

Implications for the Future

Q & A


Assessing the RisksSWF Establishment: the First Trends

There were three major waves of SWF formation, in the 1970s, the 1980s and the 1990s. The olderSWFs, such as KIA and ADIA, tend to be more conservative in their investment approach

Source: Deutsche Bank; Standard Chartered


Assessing the RisksThe Current Wave of SWF Formation

However, about half of all existing SWFs — 18 — were formed in the fourth wave 2000–2007. NewerSWFs, such as Istithmar, Mubadala, and DIFC, tend towards a more aggressive investment approach.



Assessing the Risks

Industrial countries

Asia

Latin America

CEE

Middle East

Foreign Reserves 2006(USD 4.2 Trillion)

31

34

55

63

72

83

87

101

153

168

179

262

272

280

464

1,528

0 500 1,000 1,500 2,000

India

Taiwan

South Korea

Brazil

Singapore

Hong Kong

Malaysia

Mexico

Thailand

Turkey

Poland

Indonesia

Saudi Arabia

Egypt

China

Russia

The Emergence of Sovereign Wealth Funds

Foreign Reserves in USD Bn (2007)

Foreign Reserves 1996(USD 1.5 Trillion)

Driven by high commodity prices, and favorable balance of trade, foreign exchange reserves are high inmany emerging countries. Many countries with high foreign reserves choose to set up Sovereign WealthFunds (SWFs).

Source: The Economist, February 2007; Deutsche Bank


Assessing the Risks

8

30

31

33

33

80

108

200

250

250

330

875

1,635

1,749

1,813

0 500 1,000 1,500 2,000 2,500

Kuwait Investment Authority

Barclays Global Investors

State Global Investors

Fidelity Investments

ADIA

GIC

CALPERS

JPM Asset Management

China Investment Company

Temasek

Carlyle Group

Goldman Asset Management

KKR

Bridgewater Associates

Istithmar1

3

4

16

18

21

23

36

42

45

64

0 25 50 75

Bank Assets

World GDP

Stock Market Cap

Private Debt Securities

Public Debt Securities

Investment Funds

Pension Funds

Insurance Companies

Reserves ex Gold

SWFs

Hedge Funds

Assets Managed by FinancialInstitutions in USD Billions (2005)

Size of Sovereign Wealth Funds

Global Asset Classes inUSD Trillions (2005)

Source: Citibank; Standard Chartered; Deutsche Bank

As a group, SWFs are relatively small compared to other global asset classes, but individual SWFs aresignificant players. SWFs are emerging as significant players in the global financial systems, both asinvestors and as providers of liquidity.


Assessing the RisksGeographical Spread of SWFs


Today, SWFs are estimated to hold up to $3 trillion in total assets, with the Middle East and East Asiafunds having 80 per cent by dollar value.

1.2East TimorTimor Leste Petroleum Fund

10New

ZealandNew Zealand Superannuation Fund

15TaiwanTaiwan National Stabilization Fund

18MalaysiaKhazanah Nasional BHD

20KoreaKorean Investment Corp

35BruneiBrunei Investment Agency

50AustraliaAustralian Government Future Fund

108SingaporeTemasek Holdings

140ChinaHong Kong Monetary AuthorityInvestment Portfolio

200ChinaChina Investment Company

330SingaporeGovernment of SingaporeInvestment Corporation (GIC)

SizeSizeCountryCountryFundFund

0.2PNGMineral Resources StabilizationFund

Asia and the Pacific ($927 bn)

North and South America ($90 bn)

29IrelandNational Pensions ReserveFund

322NorwayGovernment Pension Fund— Global


2.6NorwayGovernment PetroleumInsurance Fund

Europe ($354 bn) Russia and Central Asia ($147 bn)

15IranForeign Exchange Fund

10Abu DhabiMubadala

8.2OmanGeneral Stabilization Fund

12DubaiIstithmar

25AlgeriaReserve Fund

40QatarQatar Investment Authority

50LibyaReserve Fund

250KuwaitKuwait Investment Authority

300Saudi ArabiaVarious Funds

875Abu DhabiAbu Dhabi InvestmentAuthority


n/aDubaiDIFC

Middle East and North Africa ($1,571 bn)

n/aMauritaniaNational Fund forHydrocarbon Reserves

n/aAngolaReserve Fund for Oil

0.4UgandaPoverty Action Fund

4.7BotswanaPula Fund

11NigeriaExcess Crude Account


Sub-Saharan Africa ($16 bn)

18KazakhstanKazakhstan National Fund

127RussiaStabilization Fund


1.5AzerbaijanState Oil Fund

0.8VenezuelaInvestment Fund forStabilization

3.2U.S.Permanent WyomingMineral Trust Fund

6ChileEconomic and SocialStabilization Fund

15U.S.New Mexico StateInvestment Office

17CanadaAlberta Heritage Fund

40U.S.Alaska PermanentReserve Fund


0.6ChilePension Reserves Fund


Assessing the Risks

RecipientRecipientCountryCountry

GovernmentsGovernments

SovereignSovereignGovernmentGovernment

OwnersOwners

OtherOtherFinancialFinancial

InstitutionsInstitutions

MultilateralMultilateralRegulatory andRegulatory and

OversightOversightInstitutionsInstitutions

CompaniesCompaniesConsideringConsidering

SWFSWFInvestmentsInvestments

SWFsSWFs

There Are Six Major Constituencies Affected by the Rise of SWFs


Assessing the RisksConstituency Interests and Concerns

Interests

Capture benefits of this form ofinvesting (diversification, higher returns,flexibility)

Increase long-term national wealth

Increase influence in global financialaffairs

Increase clout in global financial system

Concerns

Avoiding protectionist backlash thatmight hurt broader trade interests

Interests

Welcome responsible foreign investors

Protect vital economic and national security assets

Ensure reciprocity in trade, investing

Concerns

Monitoring SWFs owned by unfriendly governments

Limiting potential for nonfinancial behaviors

Fearing SWFs may be Trojan horses

Monitoring funds that are not transparent

In OECD countries, fearing potential loss of economic andpolitical power

Interests

Maintain free flow of capital globally

Preserve level playing field for allinvestors

Preserve systemic stability

Concerns

Monitoring funds that are nottransparent

Limiting potential for nonfinancialbehaviors

Guarding against corruption

Protecting against poor riskmanagement

Interests

Enact desire to work with SWFs aspartners, co-investors, clients

Maintain open access to all SWFs

Maintain access to opportunities innew geographies

Concerns

Fearing that SWFs will have unfairadvantages (lower cost of capital,privileged access to information anddeal flow)

Worrying about effect on marketdynamics (asset pricing, riskpremiums)

Interests

Preserve equal access to opportunities and talent worldwide

Achieve and sustain highest level of professionalism

Preserve autonomy

Maintain low profile

Concerns

Avoiding regulatory barriers, uneven treatment relative toother asset classes

Avoiding political firestorms when investing abroad

Interests

Gain access to foreign sources ofcapital

Welcome long-term passive investors

Gain access to opportunities in newgeographies

Concerns

Avoiding potential PR firestorms

Preserving freedom to operate incertain countries or sectors

Minimizing foreign political interferencein decision making








Q & A


Assessing the RisksWhat Is a Sovereign Wealth Fund?

Source: Robert Kimmitt, Public Footprints in Private Markets, Foreign Affairs, January / February 2008

SWFs are part of a range of government investment vehicles. We used three criteria to define SWFs:1.) owned by a sovereign government, 2.) managed separately from official foreign currency reserves ofthe monetary authority, and 3.) invest in a portfolio of asset classes including foreign assets

Sovereign Funds

Official Reserves /Central Bank

External assets fordirectly financinginternationalpaymentimbalances

Highly liquid, oftenOECD governmentbonds

Pension Funds

Investmentvehicles to meetgovernment’sfuture pensionobligations

Funded anddenominated inlocal currency

DomesticSovereign Funds

Investmentvehicles toencouragedomestic economicdevelopment

Funded anddenominated inlocal currency

Sovereign WealthFunds

Investmentvehicles funded byforeign exchangeassets

Managedseparately fromofficial reserves

Typically have ahigher tolerance forrisk

State OwnedEnterprises

Companies wherethe state hassignificant control

May makeinvestments inforeign assets

Federal Reserve(U.S.)

Bank of England (UK)

SAMA (Saudi Arabia)

Government PensionFund (Norway)

GIC (Singapore)

Khazanah Nasional(Malaysia)

ADIA, Mubadala(Abu Dhabi)

Temasek, GIC(Singapore)

Istithmar, DIFC(Dubai)

CIC (China)

SAMA (Saudi Arabia)

CNOOC (China)

Gazprom (Russia)

SABIC (Saudi Arabia)

EXAMPLES


Assessing the RisksMonitor SWF Transaction Database: Methodology

Publicly available sourcesPublicly available sourcesof SWF activityof SWF activity

SWFsSWFs andandrecent dealsrecent deals

Data assessment

Focus on direct investmentFocus on direct investmentin equities and real estatein equities and real estate

Final DatasetFinal Dataset

Data collected

Data checked andverified

Limitedtransparency andspotty reporting

1,181 deals, 25 funds1975–Q1 2008

Funds not meeting ourdefinition

Deals before 2000

17 funds, 785 deals$250 bn investment

Subscriptiondatabases, pressarticles, websites offunds, and recipientcompanies


Assessing the RisksFunds Used in the Monitor Database

Monitor’s SWF Transaction Database includes 17 funds for which we found public deal information

CountryCountry Fund NameFund NameYear ofYear of

FoundingFoundingAssets Under ManagementAssets Under Management

(USD(USD BnBn))Transactions in MonitorTransactions in Monitor

DatabaseDatabase

Singapore Temasek Holdings 1974 108 393

Malaysia Khazanah National BHD 1993 18 76

Singapore Government of Singapore Investment Corporation 1981 330 74

UAE Istithmar 2003 12 63

Libya Libyan Investment Authority N/A 50 45

UAE Mubadala Development Company 2002 10 34

Qatar Qatar Investment Authority 2005 40 22

UAE Abu Dhabi Investment Authority 1976 875 16

Kuwait Kuwait Investment Authority 1953 250 13

Brunei Brunei Investment Agency 1983 35 12

UAE Dubai International Financial Centre Investments 2006 N/A 11

China China Investment Company Limited 2007 200 9

New Zealand New Zealand Superannuation Fund 2003 10 8

Ireland National Pensions Reserve Fund 2001 29 5

Iran Foreign Exchange Reserve Fund 2000 15 2

Hong Kong Hong Kong Monetary Authority Exchange Fund N/A N/A 1

Azerbaijan State Oil Fund 1999 1.5 1

Source: Truman, “SWFs: The Need for Greater Transparency and Accountability”, Peterson Institute, August 2007








Q & A


Assessing the Risks

85

146

129137

90

47

6063

53

8592

49

28

86343

0

40

80

120

160

2000 2001 2002 2003 2004 2005 2006 2007 2008(H1)

Number

Value ($Bn)

Recent SWF Investments by Year

Since 2000, there has been a marked increase in SWF direct investment in equities and real estate.

SWF Equity Transactions by Number and Volume Since 2000

Note: Publicly available data for SWF equity dealsSource: Monitor SWF Transaction Database


Assessing the RisksSWF Investment by Area

Since 2000, some two thirds of SWF investment by value has been in the OECD. However, two thirds ofthe deals by number were in emerging markets.

OECD61%

BRIC14%

Non-OECD(excluding BRIC)

50%

BRIC19%

OECD31%

Number of Deals by Region(785 deals)

Value of Deals by Region($250 Bn)

Non-OECD(excluding

BRIC)25%

Note: Publicly available data for SWF equity deals 2000-Q1 2008Source: Monitor SWF Transaction Database


Assessing the Risks

Since 2000, funds based in MENA have invested $100 billion in 205 deals. $73 billion has gone to NorthAmerica and Europe, but this accounted for fewer than half the deals.

Investment Flows: Middle East and North Africa (MENA)

Note: Publicly available data for MENA SWF equity deals 2000-Q1 2008Source: Monitor SWF Transaction Database


Assessing the RisksInvestment Flows: Asia-Pacific

Since 2000, Asian SWFs invested $150 billion in 573 deals. These invest more heavily in their own region;half of the total investment by value and some 80% of deals by number took place in Asia.

Note: Publicly available data for Asia-Pacific SWF equity deals 2000-Q1 2008Source: Monitor SWF Transaction Database


Assessing the RisksDomestic / In-Region / Out-of-Region

In-region36%

Domestic35%

Out-of-region29%

9

11

12

13

16

22

34

45

63

74

76

393

NumberNumberof Dealsof Deals

56%22%22%China Investment Co. Ltd.

82%─18%Dubai International Financial Centre

42%25%33%Brunei Investment Agency (BIA)

46%38%15%Kuwait Investment Authority (KIA)

69%13%19%Abu Dhabi Investment Authority (ADIA)

77%23%─Qatar Investment Authority (QIA)

53%18%29%Mubadala Development Company

56%40%4%Libyan Investment Authority

78%6%16%Istithmar

38%61%1%Government of Singapore InvestmentCorporation (GIC)

1%20%79%Khazanah Nasional Bhd

12%45%43%Temasek Holdings

% Out% Out--ofof--RegionRegion

% In% In--RegionRegion

%%DomesticDomestic

FundFund

Note:Source: Monitor SWF Transaction Database

Number of Deals by Region2000–Q1 2008

(785 deals)


Assessing the Risks

By number of deals, SWFs invest across sectors, including financial services, real estate, industrials,consumer and IT. However, by value, almost half the deals are in financial services, which reflects atypicalintensity of investment in that sector during the sub-prime mortgage crisis during 2007 and early 2008.

Number of Deals by Sector(785 deals)

Value of Deals by Sector($250 Bn)

Other3%

Transport4%

Healthcare4%

Telecom6% Financials

22%

Real Estate18%

Industrials15%

IT10%

Energy8%

Other8%

Healthcare2%

Telecom2%

IT1%

Consumer3%

Industrials8%

Financials46%

Real Estate19%

Energy11%

Consumer10%

SWF Investment by Sector

Note: Publicly available data for SWF equity deals 2000-Q1 2008Source: Monitor SWF Transaction Database


Assessing the RisksSWF Investment: Analyzing Ownership and Control

Contrary to popular opinion, SWFs do take controlling stakes, however they rarely do so in OECDmarkets.

Notes: Sensitive sectors include Energy & Utilities, Financials, Information Technology, Infrastructure and Government, Telecom, and Transportation & AerospaceSource: Monitor SWF Transaction Database

8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%3%

8%

39%

50%

Number of Deals

11%

10%

71%

Value of Deals

Controlling Stake in"Sensitive" Sectors - OECD

Controlling Stake inNon-Sensitive Sector - OECD

Controlling Stake - Non-OECD

Not a Controlling Stake

Stake Data by Sector and Geography, 2000–Q1 2008


Assessing the RisksSummary of Findings on Investment Behavior of SWFs

SWFs invest heavily in domestic and emerging markets. A majority of SWF investments by value occur in

OECD markets, although the proportion is magnified by recent large investments during the credit crunch of

2007–2008. More than half of all transactions by number have occurred in domestic and emerging markets.

Recent SWF investments in U.S. and European financial services firms are atypical and opportunistic,

reflecting the credit crunch of 2007–2008. Most SWF investments have occurred in financial services, real

estate, and industrial companies, with most publicity focused on financial services. Controlling for the effects of

the recent credit crunch, the apparent appetite for investment in this sector drops markedly, though it remains

significant.

SWFs are willing to take controlling stakes in companies. In contrast to prevailing views, since 2000,

SWFs have acquired controlling stakes in half of their transactions for which stake data are available. By far

most of these deals occurred in emerging markets and in sectors not generally deemed politically sensitive.

SWFs are taking more financial risk with their investments. Most SWFs are adjusting their portfolios to

combine conservative and relatively liquid asset classes, such as government bonds, with higher-risk, illiquid

assets such as equities, real estate, and alternative instruments.

SWFs do not appear to be investing for political motives. Some funds are making strategic investments to

hasten economic development in their home country, but they do not appear to be active in ways that threaten

the economic or national security of foreign countries where they invest.

11

22

33

44

55








Q & A


Assessing the RisksRecent SWF Behavior: Q2 2008 vs. Q1, by Target Sector

Value of SWF Investments Q1 and Q2 2008 by Target Sector

Note: Publicly available data for SWF equity deals Q2 2008Source: Monitor SWF Transaction Database

In Q2 of 2008 SWFs investing $26.5 billion in public equity deals, compared to $58.3 billion in Q1. Of thistotal value in Q2, half was invested in real estate, while significantly less went into financial services

13.7

0

10

20

30

40

50

60

70

2.12.2

9.5

43.4

58.3

Q1 2008

2.53.2

4.0

26.5

Q2 2008

Infrastructure

Services

Technology

Healthcare

Transportationand Aerospace

Telecom

Consumer

Real Estate

Industrials

Energy & Utilities

Financials

1.6

$ Bn


Assessing the RisksRecent SWF Behavior: Q2 2008 vs. Q1, by Target Region

Note: Publicly available data for SWF equity deals Q2 2008Source: Monitor SWF Transaction Database

By geographic region, SWFs continued to invest actively in emerging markets (over half of the Q2 total),while dramatically reducing their investment in North America

11.1

0

10

20

30

40

50

60

70

11.1

23.1

24.2

58.4

Q1 2008

2.0

8.0

0.94.4

26.4

Q2 2008

MENA

Sub-Saharan Africa

Multiple Regions

Europe(including Russia)

North America

Asia Pacific

Value of SWF Investments Q1 and Q2 2008 by Target Region

$ Bn


Assessing the RisksQ2 Highlights

In the second quarter of 2008, funds in the Monitor SWF Transaction Database executed

43 deals totaling $26.5 billion. In contrast, those funds executed 42 deals totaling $58.3

billion during the previous quarter (Q1 2008).

Half of the deals by value in Q2 were in real estate. Real Estate had the largest number of

deals (12) and the highest investment ($13.7 billion) in Q2 2008.

During Q2 2008, investment shifted away from financial services. SWFs carried out 10

deals and invested $4 billion in the financial services sector during Q2 2008. In the previous

quarter (Q1 2008), funds carried out 13 deals totaling $43.4 billion.

SWFs continued to invest actively in emerging markets. In Q2 2008, over half of the deals

and funds invested were in emerging markets. SWFs carried out 26 deals and invested $15

billion in BRIC and other non-OECD countries.

Investment in North America dropped dramatically. In Q2 2008, 4 deals totaling less than

$1 billion were received by North America. In contrast, this region received 7 deals totaling $23

billion during the previous quarter (Q1 2008).

11

22

33

44

55








Q & A


Assessing the RisksImplications for Key Constituencies

Invest in a way that encouragesdevelopment of domestic industries

Develop a track record of investmentbehavior that meets internationallyaccepted standards

Increase transparency aroundpolitical intentions and investmentstrategy

Understand SWF motivationand also potential risks

Acknowledge and addressconcerns of corporatestakeholders and otherconstituencies

Ensure that changes to regulatoryframeworks preserve the benefitsSWFs’ offer and avoid penalising them

Treat SWFs like other investors andwatch closely for signs of inappropriateinfluence of sovereign governmentleaders

Develop common and effectivestandards of SWF transparency

Create distance from sovereign government owners toreinforce perceptions of autonomy

Demonstrate that funds are professionally managed

Put in place robust risk-management systems

Build and disclose a track record illustrating pursuit offinancial goals

Study SWF investment patternsto identify opportunities forcollaboration and co-investment

Get to know principals at SWFsand understand their needs

Treat SWFs on equal terms to other foreign investors

Assess potential risks on the basis of clear, transparent criteria

Increase scrutiny and review for transactions in sectorsthat have national security implications

RecipientRecipientCountryCountry

GovernmentsGovernments

SovereignSovereignGovernmentGovernment

OwnersOwners

OtherOtherFinancialFinancial

InstitutionsInstitutions

MultilateralMultilateralRegulatory andRegulatory and

OversightOversightInstitutionsInstitutions

CompaniesCompaniesConsideringConsidering

SWFSWFInvestmentsInvestments

SWFsSWFs


Assessing the RisksSWFs: Looking Forward

SWFs will become fixtures of the global financial system, with more and bigger fundsemerging and with continued appetite for higher risk-adjusted returns. Current marketforces and improved reception of the funds will tend to reinforce their positive impact

The recently released, voluntary Santiago Principles of the IMF’s International WorkingGroup of SWFs are very positive step in the creation of an international framework forfund best practices– Further progress still can be made on third-party verification of compliance either

through IWG’s Standing Group or individual fund actions (e.g., ADIA)

Similar progress is required in creating a reciprocal framework among recipientgovernments to ensure open and fair investment access to SWFs– OECD Declaration on SWFs adopted in June is only a minimal first step

SWFs are just one form of government investment vehicle. Central banks (e.g., SAFEand SAMA) and state-owned enterprises, which are also participating in a broad range offoreign assets classes, warrant attention as well








Q & A

Economy & Finance

Gaim Presentation by Drosten Fisher of Monitor Group November 16, 2008