Presentation Equity Markets Remco Lenterman

1
Presentation Equity Markets Remco Lenterman

• Goldman Sachs International
• May 2002

2
Agenda

• The concept of Equity

1
3
A Tale of Tulips

• 1630 in Holland Tulips are considered an
  investment by the population
• 1636 Tulipomania
• Tulips are traded with a rage that spreads to
  all classes of the society
• 1637 Speculation begins
• Bulbs are sold faster than they can grow
• In March, Francois Koster pays DFL 6650 for a
  few dozen tulips Fortunes are made all over the
  country
• Market collapses on the rumour that the tulips
  are worthless
• Panic seizes the market
• In May 1637, Tulip prices collapse by 99 of the
  price they traded at two months earlier

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Agenda

• The concept of Equity

1
Why do companies issue shares?
2
Why invest in Equity?
3
Maturity of the Equity Markets
4
The Role of the Intermediary
5
The Role of the Regulator
6
5
The concept of Equity
Bank loans
Long-term debt
Subordinated debt
Equity
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Agenda

• The concept of Equity

1
Why do companies issue shares?
2
Why invest in Equity?
3
Maturity of the Equity Markets
4
The Role of the Intermediary
5
The Role of the Regulator
6
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Why do companies issue shares?
To Raise Capital
To Improve the Profile and Visibility of the
Company
To Create Currency for Strategic Growth via
Acquisition
Employee Incentives
To Create Long-Term Exit Strategy for
Shareholders if they wish to sell
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Equity Market EnvironmentEquity issuance volumes
in Europe (in E mn)
Amount E mn
Year
Source Dealogic Bondware. Excluding preference
shares, units, rights and funds. Including
domestic shares. Amount for 2002 is YTD.
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Equity Market Environment Global Equity Issuance
(bn) by region
490
419
320
319
285
266
Source Euromoney Bondware, SDC
10
Agenda

• The concept of Equity

1
Why do companies issue shares?
2
Why invest in Equity?
3
Maturity of the Equity Markets
4
The Role of the Intermediary
5
The Role of the Regulator
6
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Why invest in Equity?

• Long-term and short-term return Equity/Fixed
  Income ratios

• A hypothetical 100 invested in the Dow Jones in
  1928 would have been worth over a 1mn in 2001
• A hypothetical 100 invested in the Dow Jones in
  1999 would have been worth 91 in 2001
• A hypothetical 100 invested in the US Treasury
  Bonds in 1928 would have been worth 4,170 in
  2001
• A hypothetical 100 invested in the US Treasury
  Bonds in 1999 would have been worth 142 in 2001

12
Agenda

• The concept of Equity

1
Why do companies issue shares?
2
Why invest in Equity?
3
Maturity of the Equity Markets
4
The Role of the Intermediary
5
The Role of the Regulator
6
13
Maturity of the Equity Markets
Absolute Size (Market Cap of broadest Index in
Euro trn)
Relative Size as Multiple of GDP
Market cap (E trn)
Market cap / GDP
countries
countries
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Maturity of the Equity Markets
Size of pension and insurance markets in Europe
as a of GDP
Allocation to equities by pension funds in Europe

Notes Pension figures as of June 2000, Insurance
figures as of December 1999 Notes Datas as of
June 2000
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Agenda

• The concept of Equity

1
Why do companies issue shares?
2
Why invest in Equity?
3
Maturity of the Equity Markets
4
The Role of the Intermediary
5
The Role of the Regulator
6
16
The Role of the Intermediary
CORPORATE ADVISORY
INVESTMENT ADVISORY
CAPITAL / LIQUIDITY / EXECUTION ADVISORY
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Typical Investor / Intermediary relationship
Portfolio Management
Trading Desk
- - Investor - -
In-house research
Research
Sales
Sales-Traders
Traders
- - Intermediary - -
Investment advisory
Execution advisory Liquidity
Execution Advice
Liquidity
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Why Liquidity is important

• Immediacy provided to clients

Depth of the order book in TOP 10 stocks (in
Euro)
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Agenda

• The concept of Equity

1
Why do companies issue shares?
2
Why invest in Equity?
3
Maturity of the Equity Markets
4
The Role of the Intermediary
5
The Role of the Regulator
6
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The Role of the Regulator
To Preserve Integrity of the market
To Ensure Transparency
To Protect Investors
To Maintain Confidence in the Financial System