The New Power Brokers: How Oil, Asia, Hedge Funds, and Private Equity Are Shaping Global Capital Markets is the result of a six-month research project by the McKinsey Global Institute (MGI). It builds on MGI’s previous research on global capital markets as well as on research conducted by McKinsey’s private equity practice and global banking practice. In this report, we provide new data and evidence on the size, investment strategies, and future evolution of each of the four new power brokers and explore their influence on world financial markets.

Susan Lund, a senior MGI fellow based in Washington, DC, worked closely with me to provide leadership on this project. The project team included Eva Gerlemann, a McKinsey consultant from the Munich office, and Peter Seeburger, a consultant from the Frankfurt office.

This report would not have been possible without the thoughtful input and expertise of numerous McKinsey colleagues around the world. These include Dominic Barton, Eric Beinhocker, Andreas Beroutsos, Markus Böhme, Kevin Buehler, Tim Church, Kito de Boer, Vijay D’Silva, Martin Huber, Conor Kehoe, Tim Koller, Stephan Kunz, Diaan-Yi Lin, Rob Palter, Emmanuel Pitsilis, Jean-Marc Poullet, Charles Roxburgh, Bruno Roy, Antoon Schneider, Seelan Singham, Bob Sternfels, Hans-Martin Stockmeier, and Sanoke Vishwanathan. Martin N. Baily, senior fellow at the Brookings Institution and former chief economic adviser to President Clinton, was a key adviser on this research. We also benefited from numerous interviews with external experts and practitioners in the field.

Tim Beacom, Dirk Isert, Pamilyn Li, Jessica Nowak, Jason Rico, Manish Sharma, Moira Sofronas, Susan Sutherland, and Mario Wandsleb provided essential research. We would also like to thank the following MGI professionals for their tireless support of this project throughout its duration: Janet Bush, senior editor; Rebeca Robboy, external relations manager; Deadra Henderson, practice administrator; and Sara Larsen, executive assistant.

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 changes 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.

Diana Farrell
Director, McKinsey Global Institute
October 2007, San Francisco

Visit The New Power Brokers McKinsey Website

You can download full publication in pdf format.

Diana Farrell, Susan Lund,  Eva Gerlemann, Peter Seeburger
McKinsey Global Institute, October 2007.

Table of contents:
Executive summary 9
1. The new power brokers 19
2. Petrodollars: Fueling global capital markets 45
3. Asian central banks: The cautious giants 71
4. Hedge funds: From mavericks to mainstream 95
5. Private equity: Eclipsing public capital markets? 127
Appendix A: Private equity 157
Appendix B: Technical notes 161
Bibliography 167

Executive summary:

Four actors—petrodollar investors, Asian central banks, hedge funds, and private equity—are playing an increasingly important role in the world’s financial markets. Although none are new, their rapid growth since 2000 has given them unprecedented clout. Research by the McKinsey Global Institute (MGI) finds that their size is likely to double over the next five years. Far from being a temporary phenomenon, the new power brokers represent a structural shift in global capital markets.

These players each have distinctive characteristics, but their growth is to an extent mutually reinforcing. By looking at them together, we shed new light on their collective impact. Petrodollar investors and Asian central banks both provide the world with very significant new sources of capital—but are also huge investors in the gray area between government and private. Hedge funds and private equity are innovative financial intermediaries that are pushing the risk-return frontier in new directions, offering investors unique diversification opportunities (Exhibit 1).

Our research shows that the new power brokers together bring significant benefits to global capital markets—but also create risks. The relative opacity of these players and a dearth of hard facts about them have compounded public concern. In this report, we do not address the regulatory issues that are on the table. We instead offer new evidence on the size of these power brokers, their growth prospects and likely future evolution, and their impact on global financial markets. In doing so, we seek to facilitate a more objective understanding of these actors and their growing influence. ...

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 over 15 countries and 28 industry sectors, on topics that include economic 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 MGI fellows based in offices in San Francisco; Washington, DC; London; and Shanghai and led by MGI’s director Diana Farrell. 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 advisors to MGI projects.

MGI’s research is funded by the partners of McKinsey & Company and is 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.

Comments (0)

Show/Hide comments

Name

Email

Website

Title

Comment

smaller | bigger

Add Comment