UAE Familiarization Program – Vil lanova University

Institute of Management Technology

Gary Dugan, C IOEmirates NBD Pr ivate Banking

January 2012

Market Share

Share(ex-sovereigns)

Contestable share(ex-sovereigns)

3%

39%

24%

1%

11%

19%

GCC corporate and family office share by investable assetsCorporate (Family Group) Family Office (UHNW)

Note that contestable assets are life wrappers and direct mutual or hedge funds; respondent sample split is Corporate = 12, Family Office = 16

30 40 50 60 70 80 90 7.00%

9.00%

11.00%

13.00%

15.00%

17.00%

The influence of customer wealth on GCC investor target re-turns

Bahraini Saudi Kuwaiti Emirati Omani Qatari

Wealth Index % (GDP/ capita, GDP/capita growth)

Target return

Note that target return averages are calculated as the weighted mid-point of categories and the wealth index is The average of GDP/capita in 2009 and 5 year GDP/capita historic growth indices, (source = IMF)Respondent sample split is Emirati = 8, Omani = 6, Qatari = 2, Saudi = 11, Bahraini = 6, Kuwaiti = 3

1

2

3

4

5

6

Evidence to support short time horizons amongst GCC

investorsDo you think GCC investors have short time horizons?

1 Yes, lack of investor experience 22%2 Yes, cultural preference 23%3 Yes, regional instability 11%4 Yes, client mobility 16%5 Yes, other 11%6 No, GCC investors don’t have short time horizons 17%

Note that all respondents are included exceptSovereigns total sample = 90

Sovereigns Expatriate GCC Investor

6.7

5.1

2.2

Evidence to support short time horizons amongst GCC investorsAverage investor time horizons

(years)

Years

Western expat NRI Arab expat GCC local

6.70%

5.70%

2.80%2.20%

7.00%

11.00%

8.00%

11.00%

Time horizon and target return (risk appetite) for GCC expatriate segments

Avg time horizon (years) Avg target return (%)

Note that averages are calculated as the weighted mid-point between time horizon and target return categoriesRespondent sample split is Western expat = 15, NRI = 13, Arab expat = 6, GCC = 36

Relative Target Return

Relative Time Horizon ( years)

High5%

3%

1%

-2%

-4%

-6%Low

Short Long -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0

Aggressive

Balanced

Conservative

Corporate

Family Office

Private Bank

Retail Bank

Institutional I&B

Sovereign Agency SWF IFA

Relative time horizons and target returns for GCC investor segments

Note that average s are calculated as the weighted mid-point between time horizon and target return categories and x/y axis figures are relative tothe mean time horizon and target return respectively,

Passive (1) Preserve (1) Income(1) Funds (1) Core (1) Developed (1)Active (5) Growth (5) Growth (5) Securities (5) Alternatives (5) Emerging (5)

1

2

3

4

5

Core Investment Preferences for Family Office and Corporate Segments

Corporate Family Office3 = neutral, 2 or 4 = slight preference, 1 or 5 = strong preferenceRespondent sample split is Corporate = 12, Family office = 16

Passive (1) Active (5)

Preserve (1) Growth (5)

Income (1) Growth (5)

Funds (1) Securities (5)

Core (1) Alternative (5)

Developed (1) Emerging (5)

0.2

0.4

0.6

0.8

1

1.2

1.4

Volatility of responses on core investment preferences in GCC institutional market

Sovereigns Other Institutional

Standard deviations calculated as an average of underlying segments

Sovereigns Expatriate GCC Investor

7.50%

9.50%

14.80%

Evidence to support asset alloca-tions amongst GCC investors

Average investor exposure to property

1

2

3

4

5

6

7

Evidence to support tangible asset allocations amongst GCC investorsDo you think GCC investors have particularly high exposure to tan-

gible assets?

1 Yes, lack of investor experience 16%2 Yes, cultural preference 36%3 Yes, historical Performance 13%4 Yes, future prospects as an asset class 13%5 Yes, risk appetite 2%6 Yes, other 7%7 No, GCC investors don’t have higher tangible allocations 13%

Note that all respondents are included exceptSovereigns total sample = 90

Note that all respondents are includedTotal sample = 108; Sample split isSovereigns = 18Expatriates = 34GCC investors = 56

Note that home – market bias is calculated by subtracting the average investor allocation by non home-market Investors from the home-market investor allocationRespondent sample split is Western expat = 15, NRI = 13, Arab expat = 6, GCC = 36

Western expat NRI Arab expat GCC local

44%41%

31%

57%

22%

31%

27%

55%

Home-market bias in GCC expatriate segments

Home market allocation Home market bias

30 40 50 60 70 80 90 100 110 12010%

20%

30%

40%

50%

60%

70%

80%

90%

The influence of internationalisation on GCC investor geographic exposure

SaudiOmaniKuwaitiQatariBahrainiEmirati

Internationalisation Index (%Expats, Openness of Economy)

International exposure (of portfolio)

Note that international exposure is the % of international assets in an average portfolio; the internationalizationIndex is the average of the percentage of expatriates (source = Wikipedia on 20April 2011) and trade openness(trade exports plus imports as a percentage of GDP) indices, (source = World Applied Sciences Journal 8 (7), 906-911, 2010) sample split is Emirati = 8, Omani = 6, Qatari = 2, Saudi = 11, Bahraini = 6, Kuwaiti = 3

Expatriate GCC investor

11%

62%

2%

33%

GCC investor and expatriate allocations to all direct investments and direct securities

Direct Investments Direct Securities

Note that all respondents are includedTotal sample = 108; Sample split isSovereigns = 18Expatriates = 34GCC investors = 56

Change in risk appetite Change in time horizon

2012+( Future

2010/11( previous year )

2012+( Future

2010/11( previous year )

%100908070605040302010

%100908070605040302010

No Change Slight increase Slight decrease

Significant increase Significant decrease

Change in time horizons and risk appetite (total market)

Note that all respondents are included; total sample = 108

The GCC’s Sovereign Wealth Funds

Fund Country Assets ($ bn) Inception Notable Holdings Origin of Funds

Abu Dhabi Investment Authority (ADIA) UAE 627 1976 Citi Group, Ferrari, Oil

SAMA Foreign Holdings KSA 473 N/A Mainly Central Bank functions Oil

Kuwait Investment Authority Kuwait 296 1953 Daimler AG, Citi Group Oil

Investment Corporation Dubai (ICD) UAE 70 2006 Emirates NBD, Emaar, DUBAL, Emirates Group Oil

International Petroleum Investment Company (IPIC) UAE 58 1984 Nova Chemicals, Ferrostaal, CEPSA,

Cosmo Oil Company Oil

Mubadala Development Company UAE 27.1 2002 GE, Rosewood AD, du Oil

Mumtalakat Holding Company Bahrain 9.1 2006 McLaren Group, Non-commodity

State General Reserve Fund Oman 8.2 1980 Libya, Bulgaria Oil & Gas

Public Investment Fund KSA 5.3 2008 Financing of Construction industry Oil

RAK Investment Authority UAE 1.2 2005 Domestic investment Oil

Abu Dhabi Investment Council UAE 0 2007 Al Hilal Bank, ADCB, NBAD, AD National Chemicals Company Oil

Source: Sovereign Wealth Fund Institute

• GCC SWFs are domestic investors with substantial stakes in the utility, energy and real estate sectors• Governments play a major role in dictating the actions of a SWF• SWFs also stabilize government and export revenues which would otherwise mirror volatility of oil and

commodity prices• Savings for future generations after resources are exhaust

Each SWF has an investment strategy

• SWFs have undertaken substantial investments across borders• Great majority are passive investors• Since they have no liabilities they tend to look for long term, illiquid high yielding investments and

promoting the domestic economy• The goal is to promote a multi-sector economy rather than oil-sector dependant

Inve

stm

ent O

bjec

tive

Risk Tolerance

ExamplesGov’t Bonds Fixed

Income EquityStrategic Stake Real Estate

Hedge Funds

Private Equity

Leverage Buyouts

Low High

Russian Stabilization FundPension Fund Global

Abu Dhabi Investment AuthorityKuwait Investment Authority

Tamasek

Qatar Investment Authority

Stabilization

Wealth Accumulation

Investment Corporation Dubai

Source: SWF Institute, ESCP Europe, IFF

SWFs are a prominent investor class

• SWF’s are a prominent investor class with their assets rivalling Global Hedge funds and Private Equity combined

• Wealth for SWFs from surge in commodity prices causing dramatic increase in current accounts (surpluses)

• SWFs are basically government, which makes them very political and tend to have lack of transparency

Source: Morgan Stanley SWF report (2007)

Assets Under Management compared to peers ($ bn)

Source: SWF Institute

Conclusion

SWF’s motives are still unclear. What is clear is that after two financial crisis they have scooped up substantial stakes across important names and industries across the globe.

Transparency is an issue

What’s next for SWFs? Transfer of knowledge through international joint ventures, mitigate economic downturns through usage of their wealth to spur economic growth, enhance regional and international co-operation