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 Funds raised and investments € billion 120 112 100 80 80 80 80 72 72 71 60 54 48 47 40 43 40 37 35 29 28 28 27 27 20 24 24 20 18 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Funds Raised Investments Source: EVCA Yearbook 4

Wary sellers put brakes on US buyouts eFinancialNews Fewer Blank Checks in Private Equity's Pocket WSJ Survey Says: Investors Looking To Up The Ante With PE WSJ After year of pain, hope is for smoother performance Financial Times 5

Challenges Photo: Clark Little 6

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 on 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 Moderator: Mike Greenstein, PwC US Panellists Panel 1: Investing in Alternatives: The 1. Sarah Fromson, Wellcome Trust 3.30 pm investor’s perspective 2. Rob Edgar, Railway Pension Investments 3. Phillip Chapple, KB Associates 4. 4. Will Smith, Morgan Stanley Will Smith, Morgan Stanley 5. Alpesh Shah, PwC 4.15 pm Break 4.30 pm Management of tax William Taggart, PwC US Moderator: Malcolm Collings, PwC Panellists 4.45 pm Panel 2: Reward and succession planning 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 8

www.pwc.co.uk What is the “new normal” for the economy and investors? Andrew Sentance Senior Economic Adviser, PwC 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 Economic scenarios for mid-2010s and beyond • Implications for investors PwC Slide 10

UK economic growth has disappointed % per annum change in non-oil GDP 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Non-oil GDP Underlying* Trend * Weighted average of manufacturing and services growth Note: Average non-oil GDP growth since mid-2009 = 1.4% Source - ONS PwC Slide 11

...while inflation has been high and volatile % per annum increase in consumer prices index 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Inflation Target Ave 2008-11 Source: Office for National Statistics PwC Slide 12

Global disinflation no longer holding down prices % per annum increase in consumer prices index 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% Source: Office for National Statistics Goods Services PwC Slide 13

Consumers face a prolonged squeeze % per annum change in GDP and consumer spending 5 4 3 2 1 0 -1 -2 -3 -4 -5 97-07 ave 2008 2009 2010 2011 2012 2013 GDP Consumer spending Source: ONS and March 2012 PwC economic forecast PwC Slide 14

Storm clouds over Europe this year % rise in GDP, 2012 forecast Russia UK Canada 2.0 3.7 Germany 0.6 0.9 Ireland -1.1 Greece -4.9 France US 2.0 0.1 Japan Spain Italy 2.1 China Mexico -0.7 -1.4 3.2 8.6 India Key 7.5 x.x Brazil = GDP growth in 2012 Australia South Africa 3.7 3.3 3.4 Source: PwC main scenario for 2012 PwC 15

World economic growth below trend % per annum change in GDP in G-13 economies* 6 5 4 3 2 1 1 0 -1 -2 -3 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 IMF, June 2011 IMF, Apr 2012 Ave 1990-2010 * EU, US and 11 other economies accounting for 85% of world GDP Source: IMF World Economic Outlook Updates PwC Slide 16

… though a slow start to recovery is not unusual average % per annum change in GDP 5 4.5 4 3.5 3 2.5 2 2 1.5 1 0.5 0 UK - 80s recovery UK - 90s recovery Advanced economies Advanced economies - 80s - 90s First 3 years 1985/95 onwards* * 1985-88 and 1995-2000 average growth rates Source: ONS and IMF. UK figures show non-oil GDP growth PwC Slide 17

Emerging market growth has been strong average % per annum change in GDP over first three years of recovery 7 6 5 4 3 3 2 1 0 UK (exc oil&gas) Advanced economies Emerging and developing economies 1982-84 1992-94 2010-12 Source: ONS and IMF. 2011 and 2012 based on latest IMF, OECD and PwC forecasts PwC Slide 18

... reflecting the rise of Asia Percentage share of world GDP, current market prices & exchange rates 40% 35% 30% 25% 20% 15% 10% 5% 0% 1980 1990 2000 2010 US EU-27 Asia-pacific G10* * Includes Australia, China, India, Indonesia, Japan, Malaysia, Singapore, South Korea, Taiwan Province of China and Thailand. Source: IMF World Economic Outlook PwC Slide 19

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 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 PwC Slide 20

Long expansions and their aftermath average % per annum change in UK GDP and consumer spending 4.0% 3.5% 3.0% 2.5% 2.0% 2.0% 1.5% 1.0% 0.5% 0.0% 1948-73 1973-82 1982-2007 2007-16* GDP Consumer spending * Based on PwC, OBR and other independent forecasts for 2012-2016 Source: ONS and PwC calculations PwC Slide 21

Forces shaping long expansions Technology and innovation Sustained Sustained Private sector Private sector Policy Policy economic environment expectations growth Financial regime PwC 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 others embrace the market economy • Relatively low energy and commodity prices (1985-2005), reinforced by “China effect” on manufactured prices 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 PwC 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 • 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 PwC Slide 24

Pre-2007 virtuous policy/confidence cycle Stable and predictable economic policy Steady/healthy Steady/healthy Financial Financial growth and low market inflation confidence Business and consumer confidence PwC 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”?), • 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 PwC 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, 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. PwC Slide 27