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Public Wealth equals 2 x GDP

Professional management could deliver, equal to what advanced economies collect in corporate tax in a year

Public Wealth - tool to boost growth and fund infrastructure

Double the funds available for infrastructure investments - without raising taxes

Christine Lagarde, October 2018

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Source: The Public Wealth of Nations, 2015; Note: Commercial assets does not include ‘Policy Assets’ as these require tax funding.

Buildings• Used by public entity• Used by third-party• Unused

Land • Developed land• Undeveloped land

Transportation• Roads (toll/ user charge)• Rail• Airport and Shipping

• Banks• Insurance companies• Mortgage providers

Financial Services

Utilities • Energy• Water

RealOperational

Public Commercial Assets

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Governments are - sitting on a ‘goldmine’

• Assets mainly visible at the national level

• Book value (historic cost) if at all registered

• Local/ regional level often not included

• Real estate often entirely forgotten

• Opportunity cost visible with market value

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Countries with greater Net Worth

Has shown;

• Lower interest expenses

• Lower yields on sovereign debt

• Greater fiscal space to address priority

needs for public spending

• More resilient to economic downturns

• Grow 3x faster after recession

Source: IMF Fiscal Monitor 2018 on Public Wealth

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From opaque and fragmented… …to consolidated and transparent

Lack of transparency and accountability

Undue political interference

Fragmented ownership and unclear objectives

Balance sheet and IFRS accounting

Arms-length distance from short-term politics

Comprehensive business plan with Clear objectives

Governance is key

Introducing professional management

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Integrating Spending Review with Public Wealth

• Privatising – when strategic, not to avoid increase in debt/ budget deficit

• PPPs – on equal terms/ risk, not to keep debt off the balance sheet

A focus on Net Worth - would enable an increase in debt to

finance an investment, to be matched with an increase in assets

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• Government owned investment fund, focused on sustainable value over time

• Global footprint, and portfolio covering all large industries

• Aimed at creating public value

$225 bn in holdings across industries 15% return since inception

Governance - best practice Providing funding for society• Transparency: Singapore Audit Standards• Political insulation:

– Independent Non-executive from private sector– Meddling constitutionally forbidden

• Clear objectives: sustainable value maximization

Source: Company website, annual reports & financial data

Return on Equity (%)

Contributed to Singapore budget

15%

Total shareholder return since 1974

~$3Bnp.a.

76 6

74 6

2012 2013 2014 2015 2016 2017

The mother of Public Wealth Funds

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• Owned mainly by the city and 5% by the state.• Largest UWF in Europe (1,290 acres)

established in 2007• Develops the waterfront and the landlocked

Örestad-district

Objective to fund metro system ROE averaging 24%

Technically a national fund Payed for housing, universities etc.• Transparency: assets booked at market

value (non-IFRS)• Political insulation: dependent on state

government, with state guarantees• Clear objectives: asset recycling-model,

i.e. selling of land instead of developing the assets in-house

Source: Company website, annual reports & financial data

Return on Equity (%)

Copenhagen real estate pays for the metro

profits used to fund expansion of CPH metro

new work spaces created

100,000

4430

8

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new residential housing units

developed

33,000

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• Company owned by the City established in 1997• Redeveloping harbor district into commercial

and cultural hub • Large investments in cultural, housing,

commercial and educational facilities

A new city-center Healthy returns of 8%

Less clear governance Contributed to vibrant city-core• Clear objectives: Stated goal

of value maximization

1. Showing only 2014-2015 as limited historical data available.Source: Company website, annual reports & financial data.

Return on Equity (%)

Hamburg developed a city-in-a-city

new educational

facilitiesfunded State-of-the-art

concert hallresidential units

7,500

new jobs

45,00012

9

6

2014 2015

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• Company wholly owned by the state• Formed in 2001 through a separation from the

railway operations• $2 billion real estate property portfolio incl.

railway stations, land, freight terminals and office building

Swedish railway property owner Healthy returns

Adheres to best practice Projects with impact on economy• Transparency: IFRS• Political insulation: Professionally elected non-

executive board• Clear objectives: Value maximization

Source: Company website, annual reports & financial data

Return on Equity (%)

Sweden building infrastructure and homes

jobs created near stations

2016

$1.5B

investments in transport

infrastructure

homes fully or partially developed

+2k

daily visitors stations

+500k

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12 107

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~400

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• Manages and develops land for and adjacent to public railway systems

• Leverages private sector for best effect to develop high-speed rail, housing and office space on public land

King’s Cross and Olympic Village Strong returns

Adheres to best practice Projects with impact on economy• Transparency: IFRS accounting• Political insulation: Professionally elected non-

executive board• Clear objectives: Value maximization

1. LCR fiscal year ends 31st MarchSource: Company website, annual reports & financial data

Return on Equity (%)

London slum to innovation center

current high-speed

rail projects

£370m

dividend to Treasury

new homes built

+10k

current developments

137

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