Alternative investments

Transcription

1 Alternative investments September 2007, CFA Managing Director Head of Global Equities and Alternatives Research

2 What are Alternative Investments? Traditional Investments Alternative Investments Real Estate Equities Hedge Funds Fixed Income Private Equity Foreign Exchange September 07 Slide 2

3 Alternative Investments are nothing new they have just been professionalized over the last decades September 07 Slide 3

4 What are Hedge Funds? lightly regulated investment vehicles with no restriction regarding their investment strategy invest across all financial markets (equities, bonds, currencies, commodities, traded real estate) and in some cases also in illiquid assets use all possible kind of financial instruments, especially derivatives (futures, swaps, options, etc) to implement their strategy often apply leverage to their portfolios, i.e. borrow funds to invest more than their initial equity capital September 07 Slide 4

5 1949 starting point of modern Hedge Funds Alfred Winslow Jones opens an equity fund using - leverage - short selling to hedge against market risk In the same year: Konrad Adenauer becomes first Chancellor NATO formed Mao proclaims establishment of the People s Republic of China September 07 Slide 5

6 ...followed by a few global players Michael Steinhardt - Steinhardt Partners ( ) Julian Robertson Tiger Management ( ) George Soros The Quantum Fund ( ) Catalysts for further rapid development: - Globalization widening scope for investment - Professionalisation of trading/improvement of market structure arbitration - development in IT quantitative strategies September 07 Slide 6

7 ...before experiencing a tremendous boom USD billion Estimated assets managed by hedge funds Q Source: Hedge Fund Research Rapid growth of AuM in hegde fund investments reflects structural shift in institutional asset allocation Strong fund inflows have increased correlation of hedge fund returns with equity markets Hedge fund investments should generate yearly returns of 7-9% in USD over the long-term September 07 Slide 7

8 When did private equity first appear? Before any stock market Columbus expeditions Hanseatic League - venture capital to merchants September 07 Slide 8

9 Private Equity: rebirth of the old model... Private Equity in the past decades were boosted again to off-set stock exchange limitations Listed Companies Private Equity Focus on quarterly profits Long term focus Diversification of Assets Focus on core business Management shareholder missmatch Alignment of interest US stock market s short term view saps US capitalism, Robert Solow, 1991 in Made in America September 07 Slide 9

10 ...that accelerated in the past years 400 USD bn Deals EU & US buyout deal volumes Number of EU & US buyout deal (r.h.s.) H Source: S&P LCD European & US Leveraged Buyout Reviews 0 September 07 Slide 10

11 Two Kind of Private Equity deals Leverage buyouts restructuring of established companies Shinsei Bank TXU Hertz Jack Wolfskin Venture Capital invest in new companies / sectors Sequoia Capital Cisco Systems Amgen Apple Google September 07 Slide 11

12 Situation now: Alternative Investments reach about 8% of world equity market capitalization (USD 3,500bn) Real Estate 27% Private Equity 40% Hedge Funds 33% Source: Credit Suisse September 07 Slide 12

13 ...with large institutions taking a significant stake % of Total Asset 35% Commodities 30% Real Estate 25% Hedge Funds 20% Private Equity 15% 10% 5% 0% Calpers Calsters ABP Ontario Teachers Source: Credit Suisse, company reports New York State Common September 07 Slide 13

14 ...and the growth is not over yet 12% % of total assets allocated to alternative investments (Europe) 10% 8% forecast 6% 4% 2% 0% Private Equity Hedge Funds Real Estate Source: Russell Survey on Alternative Investing, September 07 Slide 14

15 Po co fundusze hedgingowe? Zdywersyfikowane inwestycje w te fundusze przynoszą bardziej stabilne stopy zwrotu Indexed performance in USD ( = 100) CS Tremont index SMI with dividends S&P 500 total return index Source: Datastream September 07 Slide 15

16 ...and offer diversification potential Historical returns in % ( ) 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4% 6% 8% 10% 12% 14% 16% Volatility in % Equities - Bonds Equities - Bonds - Hedge Funds September 07 Slide 16

17 Private Equity: LBO boom is over, but we still see good opportunities in selected markets Ratio Leverage ratio for European LBOs The Golden Age of large LBOs is over, but market weakness reopens opportunities in small/mid caps Jan 98 Mrz 02 Mai 06 1st Lien/EBITDA 2nd Lien/EBITDA Other Debt/EBITDA Source: S&P LCD Review Europe We see regional opportunities in Asia and to some extent in Europe The recent credit market turmoil should refocus attention on neglected venture capital September 07 Slide 17

18 Private Equity usually outperforms listed equities Private equity earns an illiquidity premium Corporate control active investment strategy & specialization (sector know-how) Superior growth potential (VC) Leverage Annualized returns in % 10 Yr 20 Yr 0 All PE US All PE Europe MSCI World Source: Bloomberg, Thomson Financial Venture Economics September 07 Slide 18

19 but not all Private Equity funds are equal Market is very illiquid Selection of an investment is rather labour-intensive The selection of a private equity fund manager is a very important task st Quartile 3rd Quartile nd Quartile 4th Quartile years 15 years 20 years Source: Thomson Financial Venture Economics September 07 Slide 19

20 Przykład dywersyfikacji portfela przy wykorzystaniu private equity 12% 11% 10% 9% 8% 7% 6% 5% Historical returns in % ( ) More returns, less risk Equities - Bonds Equities - Bonds - Private Equity Volatility in % 4% 6% 8% 10% 12% 14% 16% Source: Credit Suisse September 07 Slide 20

21 Keypoints Major Alternative Investment classes are: Real Estate, Hedge Funds, Private Equity Alternative Investments experienced tremendous growth in assets over the last years Alternative Investments offer diversification to portfolios thanks to low correlation to traditional asset classes An optimal asset allocation would include 20% alternative investments: Cash Bonds Balanced long term (9-12 months) 20% 12% Equities 30% Total Return/ Alternative Investments 38% September 07 Slide 21

22 Performance of alternative asset classes 240 Indexed performance ( = 100) Dez 03 Jun 04 Dez 04 Jun 05 Dez 05 Jun 06 Dez 06 Jun 07 Commodities Hedge funds Private equity REITs Alternative Investment Benchmark Source: Bloomberg September 07 Slide 22

23 Global Disclaimer / Important Information For further information, including disclosures with respect to any other issuers, please refer to the Credit Suisse Global Research Disclosure site at: The information and opinions expressed in this report were produced by Credit Suisse as of the date of writing and are subject to change without notice. The report is published solely for information purposes and does not constitute an offer or an invitation by, or on behalf of, Credit Suisse to buy or sell any securities or related financial instruments or to participate in any particular trading strategy in any jurisdiction. It has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Although the information has been obtained from and is based upon sources that Credit Suisse believes to be reliable, no representation is made that the information is accurate or complete. 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