Global economy on track for solid recovery

Transcription

1 Global economy on track for solid recovery World real GDP grew by 5 percent in 20 Real GDP growth, percent Emerging and developing economies Advanced economies World Source: World Economic Outlook, International Monetary Fund, April 2011 update.

2 Inflation risk ahead? Percent change of consumer prices (year-to-year) Percent Source: World Economic Outlook, International Monetary Fund, April 20 update. Emerging and developing economies Advanced economies World

3 Inflation pressure rising in emerging countries % change in consumer price index, 3-month rolling average 18 Russia 16 India Brazil 6 4 China Source: OECD, Milken Institute.

4 End of the era of cheap capital? Consensus forecasts: Central bank rates will increase in the next 12 months Percent Percent 2.5 Eurozone 14.0 Brazil U.K..0 Russia China 0.5 U.S. 4.0 India 0.0 Q1 Q2 Q3 Q4 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q Q1 Q2 Q3 Q4 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Source: Bloomberg.

5 Investment returns for selected asset classes As of March 2011, a $0 investment made in December 2000 gives you: 500 $ $237 $191 $169 $133 $ Emerging markets Sources: Bloomberg, Milken Institute. U.S. high-yield bonds U.S. AAA corporates U.S. Treasuries Commodities S&P 500

6 Returns on commodities December 2007 December 20 Best-performing commodities Worst-performing commodities Sugar Cotton Silver Coffee Gold Tin Lean hogs Copper Cocoa Corn Soybean yellow Platinum Cattle Steel Aluminum Soy oil Nickel Crude oil Natural gas Wheat Sources: Bloomberg, Milken Institute.

7 Oil prices in real terms nearly at historic high 1861 to Q Average crude oil price in 2009 dollars, US$ per barrel Sources: BP Amoco, Bloomberg, Bureau of Labor Statistics, Milken Institute. Note: U.S. average Arabian Light posted at Ras Tanura.1984 onward Brent dated figures calculated by BP. 20 and 2011 figures calculated by MI staff using data from Bloomberg and Bureau of Labor Statistics.

8 Recent run-up in gold price Gold price, US$ per ounce $1,400 $1,200 $1,000 $800 $600 $400 $200 $ Source: World Gold Council.

9 Real commodities prices Index 1995= Oil 300 Gold Metals Sources: International Monetary Fund.

10 Outlook for commodity prices Monthly, Commodity prices, Jan = 0 Forecast Oil 350 Metals Food Sources: International Monetary Fund, Milken Institute.

11 Outlook for commodity prices Monthly, Commodity prices, Jan = Forecast Metals Energy 250 Beverage Food 0 Agricultural raw materials Sources: International Monetary Fund, Milken Institute.

12 The effect of economic growth and population growth: Food markets to grow by 9% in ten years Size of food market, US$ billions 3,500 3,000 2,500 Growth 2020 Food markets 20 2,000 1,500 1, Africa China India EU-11 Oceania S. America Indonesia U.S. + Canada Russia Other Sources: Rabobank, based on KEO, Economist Intelligence Unit and FAO.

13 Commodities prices pushed up by boosted risk appetite Index, 09/30/20= Global financial stability map risk appetite indicator (IMF) 1 5 GSCI commodities total return index /30/20 /31/20 11/30/20 12/31/20 1/31/2011 Sources: International Monetary Fund, Milken Institute.

14 Commodities: low correlation with other asset classes Return correlation with commodities (Q Q1 2011) U.S. equity 0.11 Global equity 0.19 U.S. high yield U.S. government bond Sources: Bloomberg, Milken Institute. Note: Measured quarterly from Q to Q

15 Net financial flows into commodities Index swaps US$ billions ETFs and medium-term notes US$ billions Source: International Monetary Fund.

16 Aggregate metal consumption: China s path mirrors the exponential growth in its manufacturing sector Consumption per capita (kilograms) China Japan Euro area Real GDP per capita (US$ thousands) U.S. Source: International Monetary Fund.

17 Global grain inventories remain low (est.) Percentage Global inventories-to-consumption ratio 30 Average,

18 Kip Smith slides

19 Back in year 2000, China consumed 2.6 kg/capita of aluminum Primary aluminum demand per capita in 2000 (Kg per capita vs GDP per capita) Canada Bubble indicates size of population Source: HARBOR intelligence. 5 0 China GDP per capita ($ thousands; PPP 2007 basis) India 2.6 Agricultural Brazil Russia Urbanizing & Industrializing 4.7 Taiwan South Korea Mature- Service/Tech Germany 19.0 Japan 17.5 USA 22.5

20 which tripled by 20 along with India (followed by other emerging markets) Primary aluminum demand per capita, 20 (Kg per capita vs GDP per capita) China South Korea 23.4 Germany 17.7 Japan 15.7 USA Bubble indicates size of population Brazil 7.3 Russia Source: HARBOR intelligence. India1.5 Agricultural Urbanizing & Industrializing GDP per capita ($ thousands; PPP 2007 basis) Mature- Service/Tech

21 Higher electricity prices have impacted aluminum prices via costs There is a 90% historical correlation between oil and aluminum costs as higher energy prices * impacts electricity costs in the industry. LME Cash aluminum prices vs. WTI oil prices ($/mton) ALUMINUM PRICE ($/bbl) 0 Avg energy tariff in aluminum industry vs. WTI oil prices ($/bbl) ENERGY TARIFF ($/MWH) OIL PRICES OIL PRICE Source: HARBOR intelligence.

22 Joshua Harris slides

23 Adding commodities to a portfolio improves risk/return Source: Ibbotson Associates. Efficient frontier created using treasury bills, US bonds, International bonds, TIPS, US Stocks & International Stocks from

24 Commodities as % of Market Index Investing in commodities: Public equities Seeking exposure to commodities through public equities provides investors with a liquid investment option, but also has drawbacks with respect to optimizing operations Commodities Represent Significant Percentage of Global Public Markets 60% 50% 40% 30% 20% % Bovespa $1.0 43% TSX $1.4 42% Hang Seng $2.2 22% FTSE $2.6 37% $.7 13% 0% $0 $3 $6 $9 $12 $15 Index Market Cap ($ in trillions) S&P 500 Considerations of Public Equities Dominated by some of the largest companies in the world Volatile exposure Relatively unhedged commodity price risk Focus on higher ROI projects; undermanage smaller, non-core assets Benefit from going concerns, operational enhancements Ability for current income via dividends Liquid investment

25 Investing in commodities: ETFs Commodity ETFs have underperformed spot commodity prices due to the inefficiencies of owning futures contracts versus the physical commodity Oil WTI/USO Natural Gas NYMEX/NGO 150% NYSE: UNG Nat Gas Spot 0% 50% 0% Apr-07 Dec-07 Aug-08 Apr-09 Dec-09 Aug- Commodities 500% 400% 300% S&P GSCI Total Return S&P GSCI Spot 200% 0% 0% Dec-01 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan- Source: Bloomberg, USU and UNG from inception.

26 Investing in commodities: Private equity Ability to Actively Create Value Process and control Customized structuring Embedded optionality In-depth knowledge of assets Implement strategic initiatives and operational enhancements Hedging mitigates downside risk, supports leverage Proactive capital structure enhancements Embedded Optionality Upside potential from rising commodity prices New technologies unlock resources and reduce costs Illustrative example: Private equity investment process in commodities Process Driven Commodity Discount Acquisition Price Acquisition Asset Accretive Capital Multiple Value Level Acquisitions Structure Expansion Enhancements Management Exit Value Commodity Upside Tech. Upside Total Value

27 Investing in commodities: Private equity Ability to Buy Right Private asset purchases Distressed environments Nimble and opportunistic Direct ownership of physical assets at discount to the prices in the financial markets Requires operating capabilities $1.27/lbs (1) Commodities are cyclical and volatile by nature Recurring periods of distress Public Financial Market Value vs. Private Market Value (2) $74. Major companies continue to dispose non-core, under-managed assets Complex transactions hide potential value (4) 1.35x Cost Aluminum Company A $0.75/lbs E&P Company A $34.68 (3) $50.83 E&P Company B $32.73 Shipping Company A 1.00x Cost Aluminum Oil & Gas Financial Market Price Physical Market Price Note: Investment examples selected on non-performance criteria and represent instances in which Apollo was able to acquire physical natural resources assets at a discount to where those assets traded in the financials market. (1) May 2007 spot price, which was the month Apollo bought Aluminum Company A. (2) Weighted-average oil/gas 12-month forward price as of December 6, 20, which was the date E&P Company A signed its definitive agreement to purchase first acquisition. Weighted average based on oil/gas composition of acquisition portfolio. (3) Weighted-average oil/gas 12-month forward price as of September 2009, which was the month Apollo bought E&P Company B. Weighted average based on E&P Company B. (4) Represents the average ratio of market capitalization to net asset value ("Price / NAV") for a comparable set of publicly traded companies across the tanker, dry bulk and container segments of the shipping industry, both currently and at the time of Apollo's establishment of Shipping Company A in Q2 20. Shipping

28 Lourenco Goncalves slides

29 Global crude steel production MM tonnes Rest of world China ,414 1,3511,329 1,251 1,069 1,146 1, China % of total 9% % 11% 12% 13% 13% 14% 14% 15% 16% 15% 18% 20% 23% 26% 31% 34% 36% 38% 47% 44% Source: World Steel Association.

30 Vale iron ore price history $ per metric tonne $(50) $200 $(51) $180 $160 $140 $120 $0 $80 $60 $40 $20 $ Source: World Steel Dynamics.