1. The Role of SWFs in
Financial Markets
Middle East Investment Summit
Dubai, 5- 8 March 2012
Dr. Fabio Scacciavillani
Chief Economist, OIF
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2. Shift in
Barycenter
Source: World Bank Global Development Horizons 2011
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3. Millennial View
Contribution to global GDP in the last 6 centuries at 1990 International (PPP) US$
Western United
Europe FSU States Japan China India
1500 17.9% 3.4% 0.3% 3.1% 25.0% 24.5%
1600 20.0 3.5 0.2 2.9 29.1 22.5
1700 22.5 4.4 0.1 4.1 22.3 24.4
1820 23.6 5.4 1.8 3.0 32.9 16.0
1870 33.6 7.6 8.9 2.3 17.2 12.2
1913 33.5 8.6 19.1 2.6 8.9 7.6
1950 26.3 9.6 27.3 3.0 4.5 4.1
1973 25.7 9.4 22.0 7.7 4.6 3.1
1998 20.6 3.4 21.9 7.6 11.5 5.0
2006e 19.0 3.8 19.7 6.3 15.1 6.3
Source: Angus Maddison, The World Economy: A Millennial Perspective, OECD (2001); IMF; Morgan Stanley Research
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4. 4

5. The “New” Economics
THE ECONOMIST
“The crisis of Western liberal capitalism
has coincided with the rise of a powerful
new form of state capitalism in emerging
markets”
“The crisis of liberal capitalism has been
rendered more serious by the rise of a
potent alternative: state capitalism which
tries to meld the powers of the state with
the powers of capitalism”.
Source : Special Report on State Capitalism
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6. Public vs Private
• Historically, the demarcation between public and
private sphere in the economy swings like an irregular
pendulum in response to circumstances.
• Financial markets were widely viewed as a preserve of
individuals, firms and private institutions,
• Any interference by a publicly owned entity was
deemed an undue interference at odd with well-
established laws, norms and practices.
• The massive bail out of key international banks and
industries like car manufacturing shattered this
sanctimonious attitude.
• KfW, EDF, ENI, Fannie & Freddie, Landesbanken etc.
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7. One size does not fit all
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8. Reversal of Capital Flows
• Until the 1970s, the capital flows typically moved from the developed world
towards the emerging markets and the developing economies.
• This situation had prevailed since the industrial revolution and was a
dominant feature of the first wave of globalization between the end of the
19th century and the early 20th, when the British Empire and the US were
the unmatched powerhouses.
• In essence a Brazilian or an Asian company looking for financing would obtain
it directly or indirectly from London or New York.
• Slowly, but with a remarkable acceleration over the last few years capital
flows inverted their course: particularly from emerging economies to the US.
China, Japan, some Asian Tigers and the Middle East are net supplier of
capital.
• ‘South-South’ flow are rising, including FDI. Intra emerging market flows
could be channeled directly without the intermediation of the developed
counties financial centers by strengthening the links among the outer nodes.
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9. Financial Barycenter
• The “hubs and spikes” model of global financial
markets is inadequate for a multipolar world
and implies a dangerous concentration of
systemic risks
• Pinnacles: London and New York
• Cobweb model is the most natural alternative
• South-South relationships need to strengthen
and find alternatives linkages
• Towards a multi-currency regime
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10. Global Role
• The end of the saving glut and the coming era
of capital scarcity
• Long term investments: SWFs as the ultimate
risk bearers
• SWF emerging investments trends
• SWFs investing in the less developed
economies: Africa as the last investment
frontier: savings – investment bottleneck
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11. Top Down Approach
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12. Mismanageme
nt
• Most Western countries have been living above
their means, thanks to mounting private liabilities
in the US, UK, Spain and public liabilities in most
Continental Europe.
• This came as a result of an attempt to counter the
loss of technological edge and a demographic
decline
• Public opinion and leaders in developed opinion is
still in denial
• Cuts to discretionary spending, marginal
entitlement trimmings and cuts in public
investments are mere palliatives
• It is required a re-engineering of the fundamental
functions of the public sector and its financing: 12

13. Money printing ….
does not work
Labour Market indicators
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14. Long Run Growth Drivers
and Implications for Risk
Management
• Demographics & Education
• Infrastructure & Urbanization
• Natural Resources Supercycle
• Technological Advances
• “Fluidification” of Business Environment
• High growth high barriers to entry
• Diamonds in the dirt
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15. Implications for Risk
Management
• Herd Behavior:
– Benchmarks,
– Ratings,
– Capital Adequacy Ratios
• Tail events, Black Swans and Persistence
• Financial returns diversification vs growth
drivers diversifications
• Institutional Capital
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16. Concluding Remarks
• The classification of developed economies and emerging economies starts to be out of
touch with reality, because some of the emerging economies have in fact emerged and
overtaken some of those classified as developed which in turn are sinking (Greece is
just a point in case) like South America in the 1960s. So it would be more apt to talk
about mature and high growth economies.
• The expanding role of SWF reflects this secular inversion in the distribution of global
wealth from mature economies, primarily the United States and Europe, to countries
such as China, India and Brazil which enjoy favourable demographics, and to those
with sizable natural resources such as the UAE, Norway, Australia and Russia.
• The surge in capital flows that we have witnessed over the last 25 years is the
fundamental propeller of this re-balancing because it transformed the sign of the
demographic variable in the equation of economic development.
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17. Thank You
Fabio Scacciavillani
Oman Investment Fund (OIF)
P. O. Box 329, P.C. 115
Sultanate of Oman
T: +968-2464 3035
M: +968-9321 4978
F: +968-2469 1344
E: fabio@oif.om
W: http://www.oif.om
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