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Strategic Risk Management

NOT AN OFFICIAL UNCTAD RECORD. Strategic Risk Management. An alternative view for investing huge revenue windfall. African Oil Conference - Algiers, April 4th, 2006. Drawings: The Economist. Bests Asset Managers are different!. Yale endowment: an alternative view for investing reserves.

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Strategic Risk Management

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  1. NOT AN OFFICIAL UNCTAD RECORD Strategic Risk Management An alternative view for investing huge revenue windfall African Oil Conference - Algiers, April 4th, 2006 Drawings: The Economist

  2. Bests Asset Managers are different! Yale endowment: an alternative view for investing reserves % Allocation de capitaux % Capital Allowance Annualized Yield (2) (10years-return from 06/2005) Present 2005 To Institutional Expected Risk 2003 1999 Stand 30/06/05 Average (2) Real return Domestic Equity 14,0% 14,1% 14,9% 15,1% 32,0% 6,0% 20,0% 15,7% (1) Absolute Return (1) 25,0% 25,7% 25,1% 21,8% 17,6% 6,0% 10,0% 13,1% Foreign Equity 14,0% 13,7% 14,6% 11,1% 17,4% 6,0% 20,0% 12,7% 17,0% 14,8% 39,5% Private Equity 14,9% 23,0% 6,1% 11,4% 29,0% Real Assets (3) 25,0% 25,0% 20,9% 17,9% 7,5% 6,0% 15,0% 17,7% Fixed Income 5,0% 4,9% 7,4% 9,6% 19,5% 2,0% 10,0% 7,4% Cash 0,0% 1,9% 2,1% 1,5% 3,5% Total 100% 100% 100% 100% 100,0% 6,0% 11,1% 17,4% Sources: Data consolidated from ”The Yale Endowment 2005 Report” 1) Alternative Asset Management 2) Average Value of University American Funds (06/30/2005). Past Yields do not herald future results 3) Include Real Estate/Oil & gas/Timberland

  3. Bests Asset Managers use active management Yale Diversifies Policy Asset Allocation : Target 1985 - 2005 Sources: Data consolidated from ”The Yale Endowment 2005 Report”

  4. African Oil Companies have a social responsibility • In real term, 2005 extra revenue nearly doubles 1974 and 1980 dollar surpluses • To face, oil price volatility and declining reserves, windfalls have to be invested in: • oil production and refining capacity, • the world's biggest companies, • private equity deals at home and abroad

  5. Nanjing Auto/Rover Automobile Hyop/Unicredito Banking TMNF/Real Seguros Assurances Oracle/I-Flex Software Telefonica/O2 Telecoms Mittal/Krivorijstal Acier Casino/CBD Distribution CVRD/Canico Mines Tata/Millenium Steel Acier Mittal Steel/Arcelor Acier South/ North CNPC/EnCana (Pétrole) South/ South North/ South North/ North Source: Thomson Financial-L’Expansion Capital flows are flooding, but Africa is missing

  6. Africa does not appear as well in the information loop Internet World Map Source: MichelCartier.com La carte internet du monde

  7. What miss African Oil Companies to be part of the game? • Safe and hospitable investment environment where profitable opportunities exist • Local financial market • Domestic Corporate finance and Fund management capability • Technology transfer via financial investments • Professional platform for M&A.

  8. How to achieve it? • Mix increase Oil production capacity with traditional financial investment, private equity at home and abroad • Take a long term view for managing revenues, • Enable the development of competencies poles in Energy, Telecoms, Software, Health care, Finance, Tourism, etc... • Be inspired by Kuwait and South Korea experiences in investing in less cyclical asset in complement to oil investments, • Create Partnerships controlled by Oil companies with independent financial professionals.

  9. Present and alternative Oil Company 1.Direct co-investments and partnership in Oil project and companies Direct investment 2. Investment via several investment funds Fund 1 Oil Company Fund 2 Financial Advisor ... Fund 10 3. Mix investment via Partnerships controlled by oil companies Companies 1, 2,…10 Oil Company Alternative funds Controlled Partnerships Real estate

  10. Kuwaiti & Korean Experiences Korea, an industrial approach Kuwait, a financial approach • Kuwait Investment Office (KIO) manage reserves for future generations. • 10% of oil revenues, • Mix portfolio invested in all type of asset classes and geographical zones, • Long term horizon and own financial teams, • 100 people Kuwaiti and non Kuwaiti • ETRI (Electronics and Telecommunications Research Institute), create the conditions of a long term value creation for future generations • ETRI focus on Industrial Property on four axes : • Technology Transfer, • Patents, • Start up creation, • Consulting and infrastructure for business development. • Emergence of world leaders

  11. KUWAIT, a financial approach • KIO wants to be a first class asset management company with a complementary mission for developing excellence in the Kuwaiti private sector : • Contribution to Kuwaiti human capital education and training • Active participation to investment growth in Kuwait • Transparency in operations and application strong governance • Development of a dynamic and motivated enterprise environment • Constant research of improvement in its investments process. • Controlled by the Board of the Kuwait Investment Authority, mother company, chaired by Minister of Finances, with as members : • Oil Minister • Central Bank Governor • Finance Secretary • Five other Kuwaiti experts on investments and finances of whom three are totally dedicated to this task

  12. Korea, an industrial approach • Electronics and Telecommunications Research Institute (ETRI) has been involved in more than 2.700 enterprise projects and more than 1.400 Technology transfers • ETRI spread over 264 companies mainly in Korea and abroad(Singapore …) • Today these companies represent more than 4.000 stable employees and annual revenues of WON 700 bln. • Some of these Companies are Worldleaders in domains like mobile phone, flat screens, or computers components. • With more than 3.500 international patents, ETRI is just behind American AT&T et IBM.

  13. How to implement it? • Build an investment platform with a 5 to 8 years time horizon, • Hire an experienced professional team dedicated to complement actual investment with additional asset classes such as Private Equity, Alternative investment and Real estate, at home and abroad, • Immerge in-house talents to be part of the team with purpose to train them to the best practice of Corporate finance & Asset management, • Align the interest of team members with those of the structure to be sure to keep the bests, • Transfer technologies from investment abroad to local market, • Use the expertise of your platform team for your own M&A operations.

  14. How it could be structured? Oil Company Oil Co partnership Investment Committee Operational Partner DO1 DO2 DO3 DO4 B/O* M/O* IT* F/O* CD1 CD1 CD2 J2 CD1 CD2 J1 Sec 1 A1 A1 Compt. A2 A2 A3 A4 *F/O Market Operations; M/O Post Market Operations; B/O Operations Management; IT Information Technologies; CD Department Managers; J Lawyer; A Deputy Manager; Sec Assistant; Compt Accountant Oil co personal

  15. Where is the Value? General Partner acquires companies and alternative assets or real estate Oil Company Limited Partner General Partner 99% Capital Profit & return Of capital Carried interest1 • General Partner • Sold-out Investments Portfolio: • IPO, • M&A • Recapitalizations • Transfers & Arbitrations for Alternative Assets and Real Estates • General Partner • adds value to investments through • Operational Experience, • Capital Markets experience, • Structuration Experience, • Board Involvement. Cash and/or stocks

  16. Expected benefits from this type of structure Professional Team & Regulatory Environment Technology Transfers and Education • Access to a large pool of professional resources • Adapted Regulatory Environment • Portfolio Management Methods • Techniques of M&A, LBO, Structured Finance, Alternative Assets Management • Strategic Risk Management & Coverage • Governance Regulations imposed by Venture Capitalists (Rigor & Transparency) • Industrial Technologies from acquired companies Financial Performance • Financial Output over 10% • High & Effective degree of influence & control over Investments • Legitimate access to non-public information before investment-decision • Strong alignment of Interests between Investors & Management Long Term Value Creation Diversification and Risks reduction • Access to unique opportunities in a vast & growing marketplace of privately held companies • Low correlation with other Asset classes • Private Equity and Alternative Assets Management as Risks mitigators

  17. Strategic Risk Management For any Question : Jean-François Casanova 52, rue de Ponthieu 75008 Paris Tel :      +33 (0)1 45.62.16.64 Mobile:   +33 (0)6 15 38 64 08 E-mail : jcasanova@riskvalue.com

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