Thursday, October 20, 2011

Qatar's Sovereign Wealth Fund

Power and profits won from the country's deep pockets

Since its inception in 2005, the Qatar Investment Authority (QIA), the country’s sovereign wealth fund (SWF), has made its mark globally through high profile purchases and a diversified investment portfolio, funded via its estimated QR310 billion [$80 billion] purse. From stakes in Hollywood’s Miramax Films to banks, property, hotels and car manufacturers, the QIA has made some canny financial moves.

Considered one of the world’s most aggressive SWFs, this year it plans to increase last year’s QR72 billion [$20 billion] overseas investments to up to QR127 billion [$35 billion] as it ventures into the American and British real estate markets and commits QR1.5 billion [$429 million] in Spanish banks.

Politics vs profits

Yet the fund has also sustained losses as a consequence of Doha’s foreign policy moves this year. Backing the rebels in Libya has resulted in writing off a QR7 billion [$2 billion] joint venture between the QIA and the Libyan Investment Authority, along with QR29 billion [$8 billion] in other investments in the North African country, notably by the QIA’s real estate arm Qatari Diar. Meanwhile, the Al Jazeera network’s antagonistic news coverage of the uprising in Syria — reportedly at the behest of the Qatari royal family — has provoked the ire of Damascus which suspended an estimated QR21 billion [$6 billion] in Qatari investments in the country, including Qatari Diar ventures and two power generators to have been built by the Qatar Electricity and Water Company.

Doha seems willing to take such a financial hit as it becomes more active in international politics and cements its position in the Gulf Cooperation Council, following warmer ties with regional superpower Saudi Arabia. Losses elsewhere can be offset by securing financial and military backing in the West and the Far East, where Qatar has helped shore-up the financial system. Yet as one analyst noted, “they can afford to lose billions in Libya and Syria, but can you imagine if these companies were owned by shareholders?”

The QIA, however, is predominantly controlled by the ruling family, the Thanis, who account for four out of the six board members. Advising the QIA are some of the world’s top investment bankers poached from leading financial firms.

One of the fund’s most savvy financial moves was when investment arm Qatar Holdings acquired QR12 billion [$3.3 billion] in shares, and the Qatari royal family-owned Challenger Universal a QR3.5 billion [$1 billion] stake, in Britain’s Barclays Bank in 2008. In 2010, the QIA sold off 379 million of its shares to make a cool QR3.5 billion [$1 billion] in profit. Stakes in Credit Suisse have equally generated massive returns, having acquired shares in the wake of the global financial crisis, and the institution has become Doha’s investment bank of choice.

Strategic vision

While Qatar continues to acquire trophy assets like Harrod’s in London and is reportedly bidding for British toy store Hamley’s and a stake in the struggling French bank BNP Paribas, emerging markets and long-term strategic ventures are increasingly important. “They have bought trophy assets, not just as trophies but for the long-term potential,” said Andrew Wingfield, a partner at international law firm Simmons and Simmons in Doha.

Over the past year among other investments the QIA sunk QR22 billion [$6 billion] into the Agricultural Bank of China, signed a QR18 billion [$5 billion] agreement with Malaysia to invest in real estate and energy, and acquired a 5 percent stake in Banco Santander Brasil.

With Qatar slated to generate QR302 billion [$83 billion] in hydrocarbon sales alone this year, according to government statistics, it is no surprise that the QIA is being heavily courted around the world for ailing economies to get a much needed injection of foreign direct investment. However, with Qatar’s budget surplus lower than expected over the past fiscal year, at 2.9 percent of economic output, the QIA will have to be selective rather than go for political-economic strategic alliances.

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