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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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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

% 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


Bests Asset Managers use active management

Yale Diversifies Policy Asset Allocation : Target 1985 - 2005

Sources: Data consolidated from ”The Yale Endowment 2005 Report”


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


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


Africa does not appear as well in the information loop

Internet World Map

Source: MichelCartier.com La carte internet du monde


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.


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.


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


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


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


  • 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.


    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.


    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


    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


    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


    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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