Wealth fund shifts investment focus

22 January 2014

The change in leadership at the Qatar Investment Authority has led to an evolution in its focus, with the fund looking to new regions for investment opportunities

One of Sheikh Tamim bin Hamad al-Thani’s first acts as emir was to reshuffle the senior leadership of the powerful sovereign wealth fund (SWF), the Qatar Investment Authority (QIA).

The replacing of Sheikh Hamad bin Jassim al-Thani by a 37-year-old lawyer, Ahmad al-Sayed, appeared a clear statement that Sheikh Tamim wanted to stamp his own imprint on the country’s most formidable economic assets. The QIA, with assets under management in excess of $115bn, is certainly that.

The QIA is boosting investment in mineral exploration and extraction in Africa and South America

The former prime minister, foreign minister and eminence grise of Qatari politics, Sheikh Hamad bin Jassim was also the chairman of Qatar Holding, the foreign investment arm of the QIA. Under his leadership, the QIA emerged as one of the world’s most influential SWFs following its formation in 2005 as a vehicle to manage the country’s oil and gas earnings.

Asset portfolio

In barely nine years, the QIA has built up a large portfolio of diversified and often opportunistic investments in foreign companies on behalf of the Qatari government. These range from listed securities and property to alternative assets and private equity, with a focus on leveraged buyouts in major European markets such as the UK and France.

One key question in light of Qatar’s domestic investment needs, is whether the QIA’s focus will shift inwards

In those two countries, the QIA has acquired a series of high-profile assets, which critics have dubbed “trophy assets”, but which nonetheless have served the essential aim of promoting the Qatari brand overseas. In no small part due to the QIA’s investment prowess, Qatar is now a global brand that reverberates from boardroom to shopping mall.

The QIA is a fundamental component of the country’s economic vision, and the appointment of Al-Sayed, who has brought in a team of senior investment bankers, is set to take the fund to its next stage.

“The Qatari authorities intend to fund the budget exclusively through non-hydrocarbons revenue streams by 2020, so the returns from the country’s investments will be crucial to that,” says Omar al-Nakib, senior economist at The National Bank of Kuwait (NBK). “Moreover, the investments themselves should bring a reciprocal benefit in terms of knowledge and expertise transfer to Qatar, expanding the economy’s productive capacity and helping the country transition away from an exclusively hydrocarbons-based economy to one driven by knowledge.”

The new CEO Al-Sayed is cut from very different cloth to the political heavyweight that is Sheikh Hamad bin Jassim, and will not enjoy the same political clout as his predecessor. But that does not mean he is a novice; he spent four years as CEO of Qatar Holding. His experience is substantial, having risen through the ranks of the QIA from his origins in the legal department.

Largest GCC sovereign wealth funds
 Assets under management, ($bn)
Abu Dhabi Investment Authority627
Saudi Arabia Monetary Agency533
Kuwait Investment Authority296
Qatar Investment Authority115
Investment Corporation of Dubai70
Ipic (Abu Dhabi)65
Mubadala Development Company (Abu Dhabi)53
Oman State General Reserve Fund8.2
Mumtalakat Holding Company (Bahrain)7.1
Public Investment Fund (Saudi Arabia)5
*=2013; Ipic=International Petroleum Investment Company. Source: KPMG

Al-Sayed has also been vice-chairman of the Qatar Exchange since June 2009, and he worked closely with Sheikh Hamad bin Jassim during the QIA’s aggressive spending spree of the late 2000s, engineering the buying of stakes in prominent brands such as Germany’s Porsche and Volkswagen, UK retailers Sainsbury and Harrods, and the investment in UK financial institution Barclays during the financial crisis.

Investment approach

Nonetheless, with the new leadership, change is coming to the fund. Analysts say this change is more likely to register in the style of the investment approach, rather than a wholesale overhaul of its strategy. “It is unlikely that a change in leadership will alter the central function of the QIA and Qatar Holding, which as a fund for future generations, so to speak, will be guided by investment logic,” says Al-Nakib.

The expectation among Gulf financiers is that the opportunist investment model, with high-profile assets fitting alongside less flashy deals, will continue. If the fund’s asset allocation model changes – geographically or in terms of asset classes, for example – it will be because of a change in risk and return appetites. “Given the sensitivity surrounding SWFs, these vehicles usually steer well clear of politics for fear that they come across as tools of foreign policy,” says Al-Nakib.

Some of the changes at the QIA preceded the July management reshuffle. The previous year, the authority demonstrated its evolution into a very different kind of SWF to the Gulf model as exemplified by the Kuwait Investment Authority (KIA) and the Abu Dhabi Investment Authority (ADIA).

In June 2012, the QIA sent shockwaves through corporate boardrooms when it blocked a bid by mining group Glencore International for fellow miner Xstrata in which it held a near 12 per cent stake. It deemed the offer too low at 2.8 Glencore shares per Xstrata share. Qatar Holding wanted improved terms for the acquisition. Displaying firmness worthy of Wall Street’s finest, the Qataris succeeded in getting what they wanted and in the process insisted on a management shake-up that took out half the leadership.

QIA clout

In May 2013, the $66bn merger was finally approved, with the terms of the deal bearing all the hallmarks of Doha, which had only started to build up its shareholding in Xstrata in April 2012. The deal woke the world up to the QIA’s importance. The coming months should signal how Al-Sayed intends to shape the SWF under his leadership.

“There has been talk in recent months of interest in social and environmental investments, which many are linking to a desire to improve the international perception of Qatar, but it remains to be seen whether these will become a significant part of the QIA’s strategy,” says Al-Nakib.

The QIA’s decision to invest $150m in the UK’s venture capital fund for clean energy is an example of this new environmental awareness.

One key question in light of Qatar’s mounting domestic investment needs, is whether the QIA’s focus will shift inwards, in contrast to the aggressive overseas deal hunting of recent years. Its massive infrastructure programme and the preparations to host the 2022 World Cup will require a significant increase in investment, so there may be more political pressure on the QIA to take a more overt domestic role. With the fund last year forming its own dedicated infrastructure unit, there appears to be some substance behind this.

There are other signs too. In October 2013, for example, it bought NYSE Euronext’s 12 per cent stake in the Qatar Exchange, enabling Qatar Holding to take sole ownership of the bourse.

Even in some of the QIA’s overseas deals, there is evidence of a greater domestic influence. The fund’s decision to diversify the Harrods brand by expanding into the hotel business may eventually feed back to Doha, which needs to build thousands of extra hotel rooms to cater to visitors attending the football World Cup. 

Yet the expectations of a stronger domestic focus are to be tempered by Al-Sayed’s demonstrated hunger for overseas deals. The tendency has been to buy companies that do not require day-to-day management, although the Glencore/Xstrata deal revealed a new-found activism that may feature more prominently in the future.

Geographically, there are indicators of a migration eastwards. In October last year, it was reported that Qatar Holding had built up a small stake in South Korea’s Samsung Electronics worth $200m-300m. This investment may prove to be a significant marker of the QIA turning eastward. Likewise, one of the first appointments made by Al-Sayed as CEO was Jason Chew, former head of Greater China operations at the US’ Pramerica Real Estate Investors. Chew now heads the QIA’s Asia real estate department and is one of a series of appointments that has boosted the executive headcount at the fund.

Media reports said Chew was joined by Hong Kong-based banker Michael Cho to head the QIA’s mergers and acquisitions department. They were preceded by Deven Karnik, a managing director of US-based Morgan Stanley’s Asia infrastructure fund, who was recruited in May last year to head the QIA’s new infrastructure business. Hiring these Asia-focused investment bankers is seen as part of a wider strategy to rebalance the QIA’s portfolio, which has substantial bias towards Europe, with a greater eastern slant.

Some big Asian deals have already been completed and more may be in the pipeline. Qatar Holding announced in January last year that it would invest $5bn in a Malaysian petrochemicals scheme, as part of an effort to fashion the Southeast Asian state as a regional hub. The Pengerang Integrated Petroleum Complex in the south of Malaysia will be developed over the next five years, and will include refineries, naphtha crackers, a liquefied natural gas import terminal and a regasification plant.

India is another Asian country receiving attention from the QIA, with reports in December 2013 that the fund was in talks to invest up to $200m in a real estate investment vehicle – the Kotak Realty Fund – taking advantage of weaker property prices in the sub-continent.

Russian move

Asia is not the only new target. Soon after taking over as CEO, Al-Sayed was appointed by the Russian Direct Investment Fund, Moscow’s SWF, to its international advisory board. This was just two months after the Qatari fund acquired a stake in Russia’s state-owned bank VTB. News reports in mid-January suggesting the QIA is in talks to buy Pokrovksy Hills, a development in the centre of Moscow, appear to confirm the SWF’s appetite for Russian assets.

Africa and Latin America may also feature more strongly in the fund’s portfolio. As the Netherlands-based consultancy KPMG noted in a report on Gulf SWFs last year, the QIA has indicated a greater interest in commodities and is boosting investment in mineral exploration and extraction in Africa and South America. KPMG also sees the QIA becoming more focused on optimising the value of its portfolio by actively exploiting synergies across its invested firms.

What is certain is Al-Sayed’s leadership will see a shift in how and where the QIA invests.

Key fact

The QIA has assets under management in excess of $115bn

Source: MEED

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