World Equity Market Performance Top 10 USD Adjusted Returns, 2006

Transcription

1 World Equity Market Performance Top 1 USD Adjusted Returns, 26 Percent Change, Year Ago Venezuela Cyprus Botswana Morocco Russia Peru Vietnam China Yugoslavia Croatia Source: Bloomberg

2 $1 in the Dow in 1995 = $28 Today Jan. 1996= Source: Bloomberg Dow Jones Industrial Average FTSE MSCI World

3 Rising Middle East Stock Markets Index, January 22 = Egypt Israel Jordan Kuwait Saudi Arabia U.A.E Source: Bloomberg

4 US$1 Invested in 2 Would Give You: $33 $23 $21 $19 $189 $179 $171 $12 Energy Gold Mid-Cap U.S. Emerging Markets Small-Cap U.S. Hedge Funds Commodities Large-Cap U.S. Stocks Stocks Stocks Source: Bloomberg

5 Alternative Investment Opportunities $1, invested in these asset classes five years ago would give you: $15,15 $17,537 $19,997 $21,4 $21,5 $11,58 Large-Cap U.S. Stocks Commodities Energy Small-Cap U.S. Stocks Gold Emerging Markets

6 Quickly Flattening Treasury Yield Curve Percent Dec. 29, 26 Dec. 3, Dec. 31, M 3M 6M 1Y 2Y 3Y 5Y 7Y 1Y 2Y Source: Federal Reserve

7 Converging Yield by Maturites Percent year Treasury bonds 2-year Treasury bonds 6. 1-year Treasury bonds 3-month Treasury bills Source: Federal Reserve

8 Net Direct Investment Developing Countries, US$ Billions 12 Africa 1 Middle East Developing Asia Western Hemisphere Source: World Economic Outlook

9 Global Futures Market Notional Amounts US$ Trillions Equity index (R) Interest rate (L) Currency (R) Source: Bank for International Settlements

10 Global Options Market Notional Amounts US$ Billions Currency (R) Interest rate (R) Source: Bank for International Settlements Equity index (L)

11 $US 37 Trillions Notional Amount Global Over-the-Counter Derivative Market June 26 Foreign Exchange Interest Rate Equity-Linked Commodity Credit Default Swaps Others Total Notional Amounts US$ Billions 38, ,296 6,783 6,394 2,352 35, ,95 Market Value of Contracts US$ Billions 1,134 5, ,77 1,73 Source: International Monetary Fund

12 Interest Rate Derivatives By Counterparty and Maturity Percent of US$ 262 Trillions Notional Amount, June With Other Dealers With Other Financial Inst. With Nonfinancial Customers Less than 1 year Between 1-5 years More than 5 years By Counterparty By Maturity Source: International Monetary Fund

13 Global Credit Derivatives Market US$ Trillions (est.)

14 Global Derivative Markets: Rating of Underlying Assets 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % (Est.) Below B BB B A BBB AAA AA Source: British Bankers Association

15 Sources of Foreign Inflows to Emerging Markets Percent Foreign Direct Investment Source: International Monetary Fund Equity Debt

16 Foreign Investment Inflow to Emerging Markets US$ Billions Direct investment Portfolio investment Other investment Source: International Monetary Fund

17 Increasing Global Capital Mobility Sum of Foreign Assets and Liabilities as a Ratio to GDP Percent Sources: Lane and Schmukler and Milken Institute staff estimates (e) Emerging Markets China India

18 Higher Degree of Integration Between NYSE and Shanghai Stock Exchange Index, Jan. 26 = Correlation =.8773 January 26 March 27 Dow Jones Industrial Average Shanghai Stock Exchange Composite Source: Bloomberg 26Q1 26Q2 26Q3 26Q4 27Q1

19 Converging Sovereign Bond Yields Percent Emerging Markets Sovereign Bonds U.S. Treasury Source: Merrill Lynch

20 21 st Century Global Equity Market Convergence Correlation with Dow, 12-Month Rolling Returns Source: Bloomberg S&P 5 COMPOSITE NASDAQ COMPOSITE FTSE 1 EURONEXT 1 DAX 3 MSCI WORLD

21 Corporate Bond Credit Spread Yield to Maturity Percent ML Corp BBB 1-3 Yr (L) Percent ML Corp AAA 1-3 Yr (L) Spread (R) Source: Bloomberg

22 Step by Step 17 Fed Fund Rate Hikes Since 24 Percent Source: Federal Reserve

23 Increasing Market Volatility Standard Deviation of Weekly Returns Percent S&P 5 EURONEXT 1 NIKKEI 225 SHANGHAI COMPOSITE MSCI WORLD Source: Datastream YTD

24 Bond Issuance Global Growth of Bond Financing Doubled Since 2 Latin America 21% 2 US$ 166 Billions Middle East 3% Africa 1% Developed Countries 5% Latin America 9% 26 US$ 35 Billions Middle East 7% Africa 2% Developed Countries 5% Asia 16% Asia 14% Europe 11% Source: International Monetary Fund Europe 16%

25 Equity Issuance ICBC IPO Accounted for 8% of The 26 World s Issuance 2 US$ 92 Billions 26 US$ 24 Billions Latin America 6% Middle East 2% Africa.1% Developed Latin America 5% Middle East 1% Africa 1% Countries 5% Developed Countries 51% Asia 38% Asia 32% Europe Source: International Monetary Fund Europe 1%

26 Debt Relative To Equity Issuance Ratio Developed Countries Europe Asia Latin America Middle East Africa World

27 Raising Price-to-Book Ratios Equity Valuation: Price-to-Book Ratio Ratio World EM Latin America EM Asia Emerging Market 1. EM Europe & Middle East Source: International Monetary Fund, MSCI Indices

28 Raising Price-to-Earning Ratios Equity Valuation: Price-to-Earning Ratio Ratio World Emerging Market EM Asia EM Europe & Middle East EM Latin America Source: International Monetary Fund, MSCI Indices

29 Raising Dividend Yield Ratio World Emerging Market EM Latin America EM Asia EM Europe & Middle East Source: International Monetary Fund, MSCI Indices

30 S&P/Case-Shiller Home Price Composite Jan-87 Jan-91 Jan-95 Jan-99 Jan-3 Jan-7 Source: Bloomberg

31 Housing Price Futures Contract 11/7 Future Contract on S&P Case-Shiller Housing Composite Source: Bloomberg Nov-6 Dec-6 Jan-7 Feb-7 Mar-7

32 Private Equity is Taking A Larger Share in Global M&A Activity 25% 22.% 21.3% 2% 15% 12.8% 14.8% 12.6% 1% 1.1% 5% 5.4% 4.3% 5.1% 3.3% 3.8% 2.9% 4.8% % Source: Dealogic *

33 U.S. LBO by Target Industry US$ Billions 7 $ $56 Media and Ent. High Technology 4 3 $37 Real Estate Retail 2 1 Of which 37% were Consumer Stable Jan Dec. 94 Of which 35% were Industrial Jan Dec. 4 Jan. 5 - Mar. 7 Healthcare Energy and Power Other Source: SDC

34 Non-U.S. LBO by Target Industry US$ Billions $451 $565 Media and Ent. Industrials 4 Retail 3 Telecommunication 2 1 $17 Jan Dec. 94 Jan. 5 - Mar. 7 Jan Dec. 4 Healthcare Real Estate Other Source: SDC

35 The Latest Boom in Merger Activity US$ Trillions 4.5 Private Equity 4. Corporate Value of announced M&A deals in 26 = $4. trillion. Source: Dealogic

36 Private Equity Accounted for One-Fifth Global M&A Deals in 26 Percent of Total M&A Deals 25 2 Total amount at announcement in 26 = $827. bn Source: Dealogic

37 Top Private Equity M&A Deals Amount at Announcement, US$ Billions US$ Billions TXU (Feb. 27) Equity Office Properties (Nov. 26) HCA (July 26) First Data Corp (April 27) Harrah's Entertainment (Oct. 26) Phelps Dodge Corp (Nov. 26) Clear Channel (Nov. 26) SallieMae (April 27) RJR Nabisco (Oct. 1988) BAA (March 26) Kinder Morgan (May 26) Alliance Boots (March 27) Freescale Semiconductor (Sept. 26) Vodafone (March 26) Albertson's (Jan. 26) Source: Dealogic $44 $39 $33 $28 $27 $26 $26 $26 $25 $24 $22 $19 $18 $17 $17

38 All-Time Top Ten Private Equity Funds KKR 26 Fund Blackstone Capital Partner V TPG Partners V Permira IV Apollo Investment Fund VI Bain Capital IX (including co-investment fund) Goldman Sachs Capital Partner V Fourth Cinven Fund Providence Equity Partners VI Warburg Pincus Private Equity IX 1 2 Amount raised, US$ billions Source: The Economist and Dow Jones Private Equity Analyst

39 Private Equity Investment Returns for the United States By Strategies, 25 1 Year Return (%) 1 Year Return (%) Buy-outs 32.5 Early stage 46.8 Balanced 27.2 All venture capital 26.5 All private equity 27 Balanced 2.8 All venture capital 19.7 Later stage 13 NASDAQ 13.4 All private equity 12.4 Later stage 13.1 Buy-outs 8.7 Early stage 1.4 S&P5 7.7 S&P5 1.2 NASDAQ 7.5 Mezzanine/ Generalist 8.8 Mezzanine/ Generalist 6.6 Source: KPMG and SAVCA

40 Private Equity Investment Returns for Europe By Strategies, 25 1 Year Return (%) Year Return (%) Mezzanine/ Generalist 51.2 Buy-outs 12.6 Balanced 32.7 All private equity 1.2 Later stage 25.4 Mezzanine/ Generalist 9.7 All private equity 24.1 Development 8.8 Buy-outs 2.9 S&P5 7.7 NASDAQ 13.4 Balanced 7.6 Development 12.2 NASDAQ 7.5 S&P5 1.2 Later stage 5.3 Early stage 4.9 Early stage -.1 Source: KPMG and SAVCA

41 Stock of Private Equity Investments Relative to Size of Economy 25 Stock of Private-Equity Investments as Percent of GDP North America $493 bn Israel 4 South Africa 6 Britain 82 Europe 213 Asia 122 Latin America 15 Source: The Economist, Deloitte, and SAVCA

42 Investment Pool of U.S. College Endowment Funds Total asset under management: $34 billion in 26 Natural Resources 4% Venture Capital 3% Cash 1% Other 1% Private Equity 4% Real Estate 5% Equity 49% Fixed Income 15% Hedge Funds 18% Source: NACUBO

43 College Endowment Funds Outperform Hedge Funds and S&P Endowments greater than $1bn Hedge funds Endowments $5m-$1bn Endowments $1m-$5m S&P5 1-year return (%) 1-year return (%) Source: NACUBO

44 All Single Manager Hedge Funds Total industry assets $1.89 trillion at end of 26 US$ Trillions Net new assets increase over $243 billion 2. Annualized growth rate since Q4 23 of 28% Sources: Hedgefund.net Q4 24Q4 25Q4 26Q4

45 Emerging Market Hedge Fund Asset Growth US$ Billions Total assets $175 billion at end of 26 Net new assets increase $23 billion in 26 Annualized growth rate since Q4 23 of 57% Q4 24Q4 25Q4 26Q4 Sources: Hedgefund.net

46 European Hedge Fund Asset Growth US$ Billions Sources: Hedgefund.net Q4 24Q4 25Q4 26Q4

47 Energy Sector Hedge Fund Growth US$ Billions Q4 24Q4 25Q4 26Q4 Sources: Hedgefund.net

48 $1 Invested in These Asset Classes in 2 Would Give You: $33 $23 $21 $19 $189 $179 $171 $12 Energy Gold Mid-Cap U.S. Stocks Emerging Markets Small-Cap U.S. Stocks Hedge Funds Commodities Large-Cap U.S. Stocks Sources: Bloomberg, Datastream, and Milken Institute staff calculation

49 Narrowing Spread Between Hedge Fund Return and One-Year Treasury Yield Percent Spread between average hedge funds return and 1-year Treasury yield Sources: Hedgefund.net, Bloomberg and MI staff

50 Hedge Funds: Converging to S&P 5? Correlation between CSFB Hedge Fund Index and Equity, Commodity, and Bond Indices Five-Year Rolling Correlation on 12-Month Returns 1.5 CSFB Tremont & Goldman Sachs Commodity Index CSFB Tremont & S&P 5 Composite -.5 CSFB Tremont & Lehman Brothers Aggregate Global Bond Index -1 Source: Bloomberg Jan-98 Jul-98 Jan-99 Jul-99 Jan- Jul- Jan-1 Jul-1 Jan-2 Jul-2 Jan-3 Jul-3 Jan-4 Jul-4 Jan-5 Jul-5 Jan-6 Jul-6

51 Hedge Fund: Risk vs. Return by Strategy y =.511x R 2 =.871 Event -Driven Global Average Monthly Return (%) Market-Neutral Other Fund of Funds - Multi Fund of Funds Multi-Stategy All Funds Sector Long/Short Equity Macro CTA Directional Standard Deviation of Monthly Return (%) Source: Bloomberg

52 Hedge Fund: Risk vs. Return by Strategy January 21- December 25 3 y =.137x Average Monthly Return (%) R 2 =.129 Fund of Fundsmulti Fund of Funds Multi-Stategy Macro Other Market-Neutral Global Event-Driven Directional Long/Short Equity All Funds CTA Sector Standard Deviation of Monthly Return (%) Source: Bloomberg

53 Hedge Funds vs. Mutual Funds Number by Domicile Location, 25 Hedge Funds Total = 6,445 Mutual Funds Total = 56,863 Off-shore Centers 8% Other Countries 5% Other Countries 12% United States 14% Asia 2% Europe 33% United States 52% Asia 21% Europe 53% Source: Hedgefund.net and MI staff calculation

54 Hedge Fund: Domicile and Asset Location Matrix Region of Domicile United States Europe Off Shore Asia Other Countries All regions of domicile Global 218, ,95 3,622 1,55 1, ,11 United States 262,315 24,426 14, ,764 33,529 Europe 9,78 83,39 8,179 1,429 12,354 Location of Assets Asia North America South America Africa Australia/Oceania Other/Unknown 1, , , , ,816 2,39 2, ,396 3,833 3, ,163 All locations of fund assets (US$ Millions) 53,44 371,48 57,788 12,634 24, ,69 Source: Hedgefund.net and MI staff calculation

55 Hedge Funds Are Getting Larger In Size Number of Hedge Funds by Size, As % of Total 1998 Total: US$ 2. Trillion June 26 Total: US$ 6.5 Trillion >$1 million, <= $5 million 7% >$5 million, <= $1 billion 1% >$1 billion <1% <= $1 million 63% >$5 million, <= $1 billion 4% >$1 billion 3% <= $1 million 27% >$5 million, <=$1 million 7% >$1 million, <=$5 millions 22% Source: Hedgefund.net and MI staff calculation >$1 million, <= $5 million 25% >$5 million, <=$1 million >$1 million, <=$5 millions 28%

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