24 November 2007

New Power Brokers

How Oil, Asia, Hedge Funds, and Private Equity Are Shaping Global Capital Markets

Four actors—petrodollar investors, Asian central banks, hedge funds, and private equity—are playing an increasingly important role in world financial markets. MGI offers new evidence on the size of these new power brokers, their impact, and their growth prospects.

Together these four new players are reshaping global capital markets.

Chapter 1: The New Power Brokers
MGI details how the rising influence of the four players is jointly shaping global financial markets. Their combined assets grew from just $3.2 trillion in 2000 to an estimated $8.7 trillion–$9.1 trillion in 2006. The factors fueling their growth will persist for at least another five years and, even under conservative assumptions, all four power brokers will grow in size and influence in the years ahead.

Chapter 2: Petrodollars: Fueling Global Capital Markets
Petrodollars are the largest of the four power brokers with between $3.4 trillion and $3.8 trillion in foreign financial assets at end-2006. Assuming oil at $50 per barrel, their assets would grow to $5.9 trillion by 2012.

Chapter 3: Asian Central Banks: The Cautious Giants
Asian central banks had $3.1 trillion in foreign-reserve assets at the end of 2006 from just $1 trillion in 2000. Assuming flat or declining current-account surpluses in Japan and China, Asian reserve assets will grow to $5.1 trillion by 2012, with average annual investments of $321 billion per year in global capital markets.

Chapter 4: Hedge Funds: From Mavericks to Mainstream
Hedge fund assets under management have tripled since 2000, reaching an estimated $1.7 trillion by mid-2007 on the back of record inflows and high returns. Including leverage used to boost returns, the industry's assets rise to as much as $6 trillion—which would make hedge funds the biggest of the four new power brokers. In MGI’s base case, hedge fund assets could reach $3.5 trillion by 2012—and between $9 trillion and $12 trillion including leverage.

Chapter 5: Private Equity: Eclipsing Public Capital Markets?
Despite the intense public focus it attracts, private equity is the smallest of the four new power brokers, with $710 billion in investors' capital at the end of 2006. Even with growth rates slower than in the past few years, MGI projects that global private-equity assets under management could reach as much as $1.4 trillion by 2012.

Monetary hegemony is an economic and political phenomenon in which a single state has decisive influence over the functions of the international monetary system.

Asian Central Banks:
China Buys Wall Street

Hedge Funds:
You can think of hedge funds as mutual funds for the super rich.

Private Equity:
A private equity fund is a collective investment scheme (fund) that invests in companies and/or entire business units with the intention of obtaining a controlling interest (usually by becoming a majority shareholder, sometimes by becoming the largest plurality shareholder) so as to be in the position to restructure the target company's reserve capital, management, and organizational infrastructure.

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