Global Alternatives Conference 2 May 2012 Overview of the - - PowerPoint PPT Presentation

Global Alternatives Conference

2 May 2012

Overview of the Alternative Asset Management market

Robert Mellor, Tax Partner , PwC

Hedge Funds

3

Private Equity

112 80 100 120 € billion

Funds raised and investments

4

48 40 28 27 27 72 80 80 18 20 35 24 28 29 37 47 71 72 54 24 43 20 40 60 80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Funds Raised Investments

Source: EVCA Yearbook

Wary sellers put brakes on US buyouts

eFinancialNews

Fewer Blank Checks in Private Equity's Pocket WSJ

5

Survey Says: Investors Looking To Up The Ante With PE WSJ After year of pain, hope is for smoother performance

Financial Times

Challenges

6

Photo: Clark Little

Remuneration: a political football

• Regulators / Govt focus on reward / risk

linkage

• “Fat cat” debate affecting pay and bonus levels

and carry schemes.

• Bonus schemes increasingly subject to
• Bonus schemes increasingly subject to

increasing global headline personal tax rates – proposed 75% tax rate for millionaires in France!

• Several traditional Fund Manager locations

still offer preferential treatment of carry / reward schemes

• Several territories are specifically competing
• n personal headline and CGT rates.

Agenda

Time Description Speaker 2.00 pm Registration and refreshments 2.30 pm Introduction Robert Mellor, PwC 2.45 pm Investment in the new normal Andrew Sentance, PwC 3.30 pm Panel 1: Investing in Alternatives: The investor’s perspective Moderator: Mike Greenstein, PwC US Panellists 1. Sarah Fromson, Wellcome Trust 2. Rob Edgar, Railway Pension Investments 3. Phillip Chapple, KB Associates 4. Will Smith, Morgan Stanley

8

4. Will Smith, Morgan Stanley 5. Alpesh Shah, PwC 4.15 pm Break 4.30 pm Management of tax William Taggart, PwC US 4.45 pm Panel 2: Reward and succession planning Moderator: Malcolm Collings, PwC Panellists 1. Tim Wright, PwC 2. John Hindley, CSFB 3. Dan Shapiro, Schulte Roth & Zabel 5.20 pm FATCA market update Rob Bridson, PwC 5.30 pm Closing remarks Robert Mellor, PwC 5.40 pm onwards Drinks and canapés

What is the “new normal” for the economy and investors?

Andrew Sentance Senior Economic Adviser, PwC

www.pwc.co.uk

Senior Economic Adviser, PwC

Outline

• Key features of the recovery so far
• What is the “new normal” for the economy

Economic scenarios for mid-2010s and beyond

PwC

• Economic scenarios for mid-2010s and beyond
• Implications for investors

Slide 10

UK economic growth has disappointed

% per annum change in non-oil GDP

0.0% 2.0% 4.0% 6.0% 8.0%

PwC

* Weighted average of manufacturing and services growth Note: Average non-oil GDP growth since mid-2009 = 1.4% Source - ONS

• 8.0%
• 6.0%
• 4.0%
• 2.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Non-oil GDP Underlying* Trend

Slide 11

...while inflation has been high and volatile

% per annum increase in consumer prices index

3.0% 4.0% 5.0% 6.0%

PwC

Source: Office for National Statistics

0.0% 1.0% 2.0% Inflation Target Ave 2008-11

Slide 12

Global disinflation no longer holding down prices

% per annum increase in consumer prices index

2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

PwC

Source: Office for National Statistics

• 3.0%
• 2.0%
• 1.0%

0.0% 1.0% 2.0%

Goods Services

Slide 13

Consumers face a prolonged squeeze

% per annum change in GDP and consumer spending

1 2 3 4 5 PwC

• 5
• 4
• 3
• 2
• 1

97-07 ave 2008 2009 2010 2011 2012 2013 GDP Consumer spending

Slide 14

Source: ONS and March 2012 PwC economic forecast

Storm clouds over Europe this year

% rise in GDP, 2012 forecast

Russia Germany UK US Canada Greece Ireland France

2.0

• 1.1

0.6 0.9

• 4.9

3.7

PwC 15

Source: PwC main scenario for 2012

Brazil India Spain Key Mexico South Africa Australia Japan Italy

2.0 3.2 3.7

• 0.7

0.1

• 1.4

3.3 7.5 3.4 8.6 2.1 x.x

= GDP growth in 2012 China

World economic growth below trend

% per annum change in GDP in G-13 economies*

1 2 3 4 5 6

PwC

* EU, US and 11 other economies accounting for 85% of world GDP Source: IMF World Economic Outlook Updates

• 3
• 2
• 1

1 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 IMF, June 2011 IMF, Apr 2012 Ave 1990-2010

Slide 16

… though a slow start to recovery is not unusual

average % per annum change in GDP

2 2.5 3 3.5 4 4.5 5

PwC

* 1985-88 and 1995-2000 average growth rates Source: ONS and IMF. UK figures show non-oil GDP growth

0.5 1 1.5 2 UK - 80s recovery UK - 90s recovery Advanced economies

• 80s

Advanced economies

• 90s

First 3 years 1985/95 onwards*

Slide 17

Emerging market growth has been strong

average % per annum change in GDP over first three years of recovery

3 4 5 6 7

PwC

Source: ONS and IMF. 2011 and 2012 based on latest IMF, OECD and PwC forecasts

1 2 3 UK (exc oil&gas) Advanced economies Emerging and developing economies 1982-84 1992-94 2010-12

Slide 18

... reflecting the rise of Asia

Percentage share of world GDP, current market prices & exchange rates

20% 25% 30% 35% 40%

PwC

* Includes Australia, China, India, Indonesia, Japan, Malaysia, Singapore, South Korea, Taiwan Province of China and Thailand. Source: IMF World Economic Outlook

Slide 19

0% 5% 10% 15% 1980 1990 2000 2010 US EU-27 Asia-pacific G10*

What is the “new normal”?

• 2007/8 marked the end of a long and sustained expansion

in UK and other Western economies

• Conditions which supported this period of growth are not

set to return quickly

PwC

set to return quickly

• Prolonged structural readjustment is underway in

response to financial crisis and East-West rebalancing

• There are significant parallels with disappointing growth

and volatility of the 1970s and early 1980s

Slide 20

Long expansions and their aftermath

average % per annum change in UK GDP and consumer spending

2.0% 2.5% 3.0% 3.5% 4.0%

PwC

* Based on PwC, OBR and other independent forecasts for 2012-2016 Source: ONS and PwC calculations

0.0% 0.5% 1.0% 1.5% 2.0% 1948-73 1973-82 1982-2007 2007-16* GDP Consumer spending

Slide 21

Forces shaping long expansions

Sustained Technology and innovation Private sector Policy

PwC

Sustained economic growth Private sector expectations Financial regime Policy environment

Slide 22

Key features of the “old normal”, 1982-2007

• Financial deregulation and liberalisation, broadening access to debt

for consumers and businesses

• New markets opening up as China, India, former Soviet bloc and
• thers embrace the market economy
• Relatively low energy and commodity prices (1985-2005),

reinforced by “China effect” on manufactured prices

PwC

reinforced by “China effect” on manufactured prices

• US the dominant economic power, with European countries

pursuing closer economic integration

• Confidence in ability of policy-makers to support growth and of

independent central banks to control inflation

• Rapid innovation and technological advance, particularly in IT and

communications

Slide 23

Forces shaping the “new normal”

• Rise of Asia and other emerging markets, with associated price

pressure for energy and other natural resources

• The legacy of the financial crisis

PwC

• Structural adjustment in western economies following the long

expansion which ended in 2007

• Breakdown of pre-2007 policy regime and knock-on effect on

financial, business and consumer confidence

Slide 24

Pre-2007 virtuous policy/confidence cycle

Stable and predictable economic policy Financial Steady/healthy

PwC

Financial market confidence Business and consumer confidence Steady/healthy growth and low inflation

Slide 25

The 1970s experience – a salutary lesson

• 25-year long expansion came to an end in the early 1970s
• The international financial system was seriously disrupted with the

end of the Bretton Woods system

• Energy and commodity prices were high and volatile
• UK growth 1973-82 averaged less than 1% pa (a “lost decade”?),

PwC

• UK growth 1973-82 averaged less than 1% pa (a “lost decade”?),

inflation was high and economic/financial conditions were volatile

• Other western economies saw a growth slowdown over this period,

with rising unemployment and high inflation

• 50s/60s full employment policy consensus undermined; lack of

confidence and policy errors compounded volatility

Slide 26

Two phases of the “new normal”

• Phase 1: Continuation (through mid-2010s) of current pattern of

disappointing growth in western economies, accompanied by financial volatility and high and fluctuating energy and commodity prices

• Phase 2: Clearer and more sustained growth dynamic emerges,

PwC

perhaps starting in the second half of this decade. However, this is likely to be based on a different set of technological, regulatory, geopolitical and financial drivers from the forces driving the pre- 2007 long expansion

• Businesses, policy-makers and investors need strategies to manage

and survive through Phase 1, while building potential opportunities for Phase 2.

Slide 27

“New normal” economic climate: Phase 1

• Prolonged period of disappointing GDP and consumer spending

growth in western economies, lasting into mid-2010s

• Asia and some other emerging markets continue to perform strongly

and are main engine of global growth

• Periodic bursts of inflation, driven by energy and commodity price

PwC

• Periodic bursts of inflation, driven by energy and commodity price

movements, adding to growth volatility

• High prices for energy and other natural resources
• Policy-makers struggle to address medium term policy challenges
• Continuing financial market volatility

Slide 28

Two-speed global recovery to continue

% per annum change in GDP

4 6 8 10 PwC

• 6
• 4
• 2

2

2007 2008 2009 2010 2011 2012 2013 Advanced economies Emerging and developing

Slide 29

Source: IMF World Economic Outlook, April 2012

Adjusting to the “new normal”

Policy and “New Normal” Economic Climate Sector-specific market and

PwC

Business strategy

Policy and regulatory environment market and structural changes

Slide 30

Some business challenges and opportunities

• Finding growth opportunities in a low-growth environment
• Adapting to changing regulatory/policy frameworks
• Adjusting to structural changes driven by changing financial and

consumer climate and emerging new technologies

PwC

• Managing in a world of high/volatile energy and commodity prices
• Accessing sources of finance in volatile and risk-averse financial

markets

• Maintaining a loyal and productive workforce while keeping tight

control of labour costs

Slide 31

The “new normal”: implications for investors

• Macroeconomic volatility and disappointing growth to persist into mid-

2010s in western economies

• Stronger growth dynamic to continue in Asia and some other emerging

markets

• Inflation likely to remain relatively high and volatile while upward pressure

PwC

• Inflation likely to remain relatively high and volatile while upward pressure
• n energy/commodity prices continues
• Credibility of policy-makers and confidence in their actions continues to be

a concern. Stronger focus on underlying real value-creation?

• More highly regulated financial markets – impact on returns?
• Opportunities in mature markets driven by changes in technology,

social/demographic trends and energy/commodities challenge

Slide 32

Panel: Investing in Alternatives – an investor’s perspective

Investing in alternatives – an investor’s perspective

Moderator:

• Mike Greenstein – PwC Global Alternative Investment Leader

Panellists:

• Sarah Fromson – Head of Investment Risk and Performance,

Wellcome Trust

34

Wellcome Trust

• Robert Edgar - Investment Manager, Railpen Investments
• Phillip Chapple - Executive Director, KB Associates
• Alpesh Shah - Director in PwC’s Actuarial Risk Practice
• William Smith - Head of European Capital Introductions Team for

European Prime Brokerage, Morgan Stanley

Tea and Coffee Break

Management of Tax

William Taggart, US Asset Management Tax Leader, PwC US Management Tax Leader, PwC US

Panel: Reward and succession planning

City’s bonus culture comes under fire Bonus cuts hide bigger problem for investment banks

38

Company bonus culture defended Higher earners play waiting game to pay less tax

A selection of headlines from the Financial Times unless indicated

Lord Myners urges tax clampdown on private equity

The Telegragh

Reward and succession planning

Moderator:

• Malcolm Collings – PwC Tax Partner

Panellists:

• Dan Shapiro – Founding Partner, Schulte Roth & Zabel LLP

39

• Dan Shapiro – Founding Partner, Schulte Roth & Zabel LLP
• John Hindley – Director, Credit Suisse
• Tim Wright – Director, PwC

FATCA Market Update

Rob Bridson, Partner, PwC

Closing remarks

Robert Mellor - PwC

Drinks and Canapés