2007 Annual Report - AIG.com

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REVIEW OF OPERATIONS— ASSET MANAGEMENT AIG’s Asset Management group manages institutional and individual money, in addition to AIG insurance company invested assets.These businesses include retail mutual funds, broker-dealer services, private banking and spread-based investment businesses. Asset Management Financial Results (in millions) 2007 2006 Revenues (a) $ 5,625 $4,543 Operating income excluding net realized capital gains (losses) 2,164 1,663 Net realized capital gains (losses) (1,000) (125) Total operating income 1,164 1,538 (a) Includes net realized capital gains (losses). Asset Management operating income declined in 2007, compared to 2006, primarily due to net realized capital losses related to foreign exchange, interest rate and credit-related mark-to-market losses and other-than-temporary impairment charges on fixed income investments, partially offset by a gain on the sale of a portion of AIG’s investment in Blackstone Group, L.P., in connection with its initial public offering. AIG Investments, one of the world’s leading asset managers, saw record growth in assets under management in 2007 to more than $766 billion, including AIG and non-affiliated client assets, primarily driven by a robust and diverse product lineup. Non-affiliated client assets grew 26 percent to $94.2 billion from the year-earlier period. Previously known as AIG Global Investment Group, AIG Investments adopted its new name in 2007. The business’ brand platform, Investor to Investor, remains unchanged, representing AIG Investments’ alignment of interests with clients. AIG Investments expanded its global presence in both developed and emerging markets. With offices in 45 cities around the world, the newest being in Dubai and Kampala, Uganda’s capital, it has more than 2,500 employees serving the needs of institutional, highnet-worth and individual clients in traditional and alternative asset classes, and private banking. Fundamental research, careful evaluation of the risk-reward equation, a diversified portfolio of asset classes, prudent risk management to preserve capital and disciplined investment for the long term—values that conform to AIG’s overall business principles— all distinguish AIG Investments in the marketplace. A major thrust in 2007 was a continuation of AIG Investments’ sustainability initiative. The initiative recognizes the risks and opportunities represented by environmental, social and governance (ESG) factors, and consideration of these factors is now an integral part of investment analysis across all asset classes. New strategies and expanded capabilities brought a wider range of opportunities across all asset classes to clients throughout the Americas, Europe, Asia Pacific and, more recently, Australia. In 2007, AIG Investments opened an asset management company in India and launched three new mutual funds there. AIG Investments India now joins three existing Asian companies serving individual investors in China (AIG Huatai), the Philippines (Philam Asset Management, Inc.) and Taiwan. AIG Investments closed its largest private equity fund ever, AIG Highstar Capital III, L.P., at $3.5 billion—nearly twice the amount of its initial target. 2007 was a busy year for alternative investments across the board, with three private equity fund closings, including AIG Asian Opportunity Fund II, L.P.; AIG Private Equity Portfolio IV, L.P.; AIG New Europe Fund II, L.P.; and significant deal activity in the United States, Central and Eastern Europe, Latin America, and Greater China and India. Rigorous focus on risk management across the board helped the hedge fund of funds avoid problems witnessed in the credit markets impacting many hedge fund strategies. As a result, hedge fund strategies now total more than $9 billion in affiliated and non-affiliated assets under management. The listed equity business performed well in 2007. The Global Emerging Markets strategy delivered strong long-term performance, which led to several substantial mandates from new clients. International equity products also delivered robust performance, specifically the International Small Cap portfolio, which was closed to new clients when assets reached capacity. A successor strategy, International Small-Mid Cap, was subsequently launched in 2007. AIG Investments’ focused approach to active risk management addressed the ongoing turbulence in the credit markets and continues to create opportunities. AIG Investments attracted more than $5.5 billion in new fixed income assets, as high yield, leveraged loans and emerging market bonds, to name a few strategies, have performed well over the long term. During 2007, AIG Global Real Estate (AIGGRE) continued to grow its global investment and development platforms. Equity under management grew to more than $23 billion, and over $4.3 billion has been raised to date for its fund business. AIGGRE pursued and completed new transactions in emerging markets, including Latin America, Eastern Europe, India and other countries in Asia, and closed on a portfolio of 86 apartment properties comprising nearly 17,000 units in the northeastern United States, one of its largest real estate transactions. Excavation also began for the International Finance Centre Seoul in South Korea. This 5.4 million-square-foot mixed-use project features many significant sustainable design elements, including co-generation, rainwater harvesting and recharging stations for electric cars. AIG Investments—Revenues* Alternative Investments 23.9% Real Estate 23.2% Fixed Income 22.2% Private Banking 13.5% Equities 10.1% Securities Lending 3.3% Other 3.8% * Includes AIG Investments, AIG Global Real Estate and AIG Private Bank; excludes warehoused investments. 38 AIG 2007 Annual Report
AIG Investments acquired a 94 percent stake in Bulgarian Telecommunications Company from Viva Ventures Holding GmbH and certain minority shareholders in 2007. The acquisition is one of the largest take-private transactions in Bulgaria, and demonstrates AIG’s long-term commitment to investing in emerging Eastern European markets. AIGGRE was named “Developer of the Year”in the office category by the Georgia chapter of the National Association of Industrial and Office Properties, an award that acknowledged its mixed-use Atlantic Station project in Atlanta and achievements in environmental innovation and community involvement. In addition, AIG Tower, a recent AIGGRE development in Hong Kong, was recognized with the prestigious People’s Choice Award in the architecture category. AIG Private Bank Ltd., based in Zurich, specializes in providing comprehensive asset management and private banking services to a worldwide clientele. The bank performed satisfactorily in 2007 while it continued to expand its global wealth management business. It established an office in Taipei to provide wealth management products and services in Taiwan through Nan Shan Life Insurance Company’s agency force. AIG Private Bank also signed a joint venture agreement with Bank Sarasin & Co. Limited to form a new Swiss bank that will cater to retail banking customers of both entities. AIG SunAmerica Asset Management Corp. (AIG SAAMCo) manages and/or administers over $55 billion in retail mutual funds and investment options in AIG SunAmerica and AIG Retirement (formerly branded as AIG VALIC) variable annuities sold to individuals and groups throughout the United States. In 2007, AIG SunAmerica continued to demonstrate strong investment performance across several asset classes, stemming from its strategy to expand its internal portfolio manager investment team and sub-advisory platform. It was recognized with strong rankings in Barron’s “Fund Family Rankings” published in February 2008. Delivering consistent performance across several investment disciplines is AIG SunAmerica’s primary focus as it expands its product offerings to meet the needs of baby boomers nearing retirement. AIG SAAMCo also continued to enhance its market positioning with value-added programs, such as Retirement Income Strategy. This comprehensive tool assists financial advisors nationwide in helping clients plan for both accumulation and distribution of assets in retirement. The AIG Advisor Group, Inc., the nation’s largest independent broker-dealer network, achieved record operating income, revenues and assets under management in 2007. Assets under management for fee-based advisors surpassed $40 billion, reflecting the network’s success in responding to the growing need for professional money management services. The AIG Advisor Group introduced a series of innovative financial products developed by AIG member companies for the nearly 8,000 affiliated financial advisors in the network, including specialty risk management solutions for high-net-worth clients and a comprehensive liability management program. The broker-dealer network also implemented a strategic realignment of its core business services to accelerate the delivery of technology support, independent product research and businessbuilding programs. All of these initiatives are designed to strengthen relationships between financial advisors and their clients. Asset Management Operating Income (billions of dollars) 0.5 1.9 2.0 1.5 1.2 2003 2004 2005 2006 2007 AIG 2007 Annual Report 39
Page 1 and 2: AMERICAN INTERNATIONAL GROUP, INC.
Page 3 and 4: FINANCIAL HIGHLIGHTS (in millions,
Page 5 and 6: overall financial condition, althou
Page 7 and 8: Group Executive Committee We are ad
Page 9 and 10: AIG’s life insurance network is t
Page 11 and 12: We have also begun to address the e
Page 13 and 14: WHAT WE SEE The ability to see and
Page 15 and 16: The Major Accounts Practice within
Page 17 and 18: Around the world, the middle class
Page 19 and 20: WE SEE GROWTH OPPORTUNITIES IN EMER
Page 21 and 22: To grow the strength of the AIG glo
Page 23 and 24: Since 2003, the AIG Disaster Relief
Page 25 and 26: RESPECT Respect encompasses how we
Page 27 and 28: Life Insurance & Retirement Service
Page 29 and 30: Domestic Brokerage Group— Gross P
Page 31 and 32: In the summer of 2007, widespread f
Page 33 and 34: in gross premiums written. It launc
Page 35 and 36: It grew new business premiums from
Page 37 and 38: emerging markets for its services,
Page 39: ILFC—Revenues by Region Total = $
Page 43 and 44: and changing interest rates, as wel
Page 45 and 46: American International Group, Inc.
Page 55 and 56: UNITED STATES SECURITIES AND EXCHAN
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