The new power brokers: How oil, Asia, hedge funds, and private equity are faring in the financial crisis is the latest research by the McKinsey Global Institute (MGI) on the evolution of four rising “power brokers” in global capital markets.

It builds on MGI’s previous research on capital markets and the work of McKinsey’s private equity practice and global banking practice. In this report, we assess how the global economic and financial crisis has affected each of these groups of investors and whether it will alter their future course.

Susan Lund, an MGI senior fellow based in Washington, DC, and Charles Roxburgh, a director in McKinsey’s London office, led this project. The project team included Matt Lippert, an engagement manager in McKinsey’s Silicon Valley office; Olivia L. White, a consultant in the San Francisco office; and Yue Zhao, a consultant in the Silicon Valley office.

This report would not have been possible without the thoughtful input and expertise of numerous McKinsey colleagues around the world. These include Tim Church, Kito de Boer, Janamitra Devan, Chris H. Figee, Jon C. Garcia, Seth A. Goldstrom, Aly Jeddy, Conor Kehoe, Diaan-Yi Lin , George R. Nast, Laurent Nordin, Robert N. Palter, Bruno Roy, Antoon Schneider, Robert A. Sternfels, Daan Streumer, and Ahmed Yahia. We also benefited from numerous interviews with external experts and practitioners in the field.

We also would like to thank the following MGI professionals for their tireless support of this project: Tim Beacom, knowledge operations specialist; Deadra Henderson, operations coordinator; Nell Henderson, senior editor; Jason Rico, senior research analyst; and Rebeca Robboy, external relations manager.

Our aspiration is to provide business leaders and policy makers around the world with a fact base to better understand some of the most important trends shaping global financial markets today. As with all MGI projects, this research is independent and has not been commissioned or sponsored in any way by any business, government, or other institution.

Lenny Mendonca
Chairman, McKinsey Global Institute
July 2009

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CONTENTS
Preface 5
Executive summary: Still power brokers? 9
1. Petrodollars: Shaken, but poised for growth 18
2. Asian sovereign investors: The crisis slows growth 35
3. Hedge funds: Can they rebound? 49
4. Private Equity: Beyond buyout 67
Appendix: Technical notes 82
Bibliography 93

EXECUTIVE SUMMARY
Still power brokers?
The global financial and economic crisis has altered the paths of four influential groups of investors—oil exporters, Asian governments, hedge funds, and private equity firms.

In a 2007 report, we labeled these four the “new power brokers” because their growing wealth and clout reflected a dispersion of financial power away from traditional institutions in Western developed economies and toward new players and other parts of the world.1 But the crisis has raised questions about the power brokers’ future growth and influence. In this report, we look back at how their fortunes diverged over the last year, and we look ahead to project where they may go from here.

By our estimates, the power brokers’ collective assets totaled $12 trillion at the end of 2008, roughly the same as 2007 (Exhibit 1). While this was better than the sharp declines in wealth of most institutional investors, there is no denying that the crisis has abruptly halted the power brokers’ rapid ascent. ...

MCKINSEY GLOBAL INSTITUTE
The McKinsey Global Institute (MGI), founded in 1990, is McKinsey & Company’s economics research arm. MGI’s mission is to help business and government leaders develop a deeper understanding of the evolution of the global economy and provide a fact base that contributes to decision making on critical management and policy issues.

MGI’s research is a unique combination of two disciplines: economics and management. By integrating these two perspectives, MGI is able to gain insights into the microeconomic underpinnings of the broad trends shaping the global economy. MGI has utilized this “micro-to-macro” approach in research covering more than 15 countries and 28 industry sectors, on topics that include productivity, global economic integration, offshoring, capital markets, health care, energy, demographics, and consumer demand.

MGI’s research is conducted by a group of full-time fellows based in offices in Brussels, London, San Francisco, Shanghai, and Washington, DC. MGI project teams also include consultants drawn from McKinsey’s offices around the world and are supported by McKinsey’s network of industry and management experts and worldwide partners. In addition, MGI teams work with leading economists, including Nobel laureates and policy experts, who act as advisers to MGI projects.

MGI’s research is funded by the partners of McKinsey & Company and not commissioned by any business, government, or other institution. Further information about MGI and copies of MGI’s published reports can be found at www.mckinsey.com/mgi.

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