If ever there were an example of investing internationally to reap the benefits of diversification, perhaps Qatar’s new venture is a shining example. Where, and how, it seeks to diversify is enlightening, and where it leads, other investors may choose to follow.
Qatar is the richest country in the world, when figured on a per capita basis. In 2005, to reduce the risk to its surplus income from oil and gas revenues from fluctuations in energy prices, it launched its sovereign wealth fund the Qatar Investment Authority (QIA), which now reportedly manages as much as $300 billion.
In November QIA launched a $10 billion investment fund together with China’s CITIC Group Ltd. to diversify away from Europe’s slowing economy into Asia and elsewhere. QIA, already hugely invested in Europe. It owns investments ranging from luxury hotels and real estate to financial services firms, automotive companies and high-end retail (and is now looking to Asia to boost growth and to further insulate its investments from volatility.
“The formation of a $10 billion investment platform by Qatar Investment Authority… and Chinese state-owned investment company, The CITIC Group, highlights an alignment of interests between the two groups,” according to Steve Moeller, head of investment solutions, Asia, Franklin Templeton Solutions. “or the QIA, which has made a number of high-profile direct investments in European real estate and in the retail and banking sectors, this is an excellent opportunity to diversify and expand its footprint in Asia where it has already been investing billions.”
Some of those already-invested billions in Asia include moves into Alibaba Group Holding Ltd. and Hong Kong department-store owner Lifestyle International Holdings Ltd. And at the formation of the fund, QIA’s then-CEO Ahmed Al-Sayed said at an investment conference in Beijing that the next five years should see QIA investment of between $15 and $20 billion in Asia.
“For investors looking to diversify their concentration to European investments (like QIA), looking at Asia, which is growing faster and will be for the foreseeable future, makes sense,” Moeller said. “Diversifying investments away from a slower-growing economy and toward a faster-growing economy—particularly in cyclical sectors where QIA has been an active investor like property, infrastructure, retail and healthcare—is consistent with this approach. Moreover, we see the creation of this platform as a further reflection of some important dynamics in the current evolution of China’s economy and the evolving attitude toward foreign external capital.”
That doesn’t mean QIA is turning its back on existing investments, or exclusively moving east. Indeed, those high-profile investments in Europe that Moeller mentioned include such holdings as Barclays and Credit Suisse Group AG, as well as an attempted takeover of Songbird Estates Plc, which owns London’s Canary wharf financial district. The success or failure of that last venture has yet to be determined.
In addition, the Katara Hospitality Co., owned by the QIA, just bought half of London’s Savoy Hotel from Lloyds Banking Group and is in talks to buy other “iconic” hotels in London and in Rome. The new fund also plans to open an office in New York. But Qatar is certainly broadening its horizons.
The QIA was among major investors who bought shares in early December in the IPO of Dubai Parks & Resorts, which is building not one but three theme parks in Dubai, as well as a 500-room hotel in the desert between Dubai and Abu Dhabi. Motiongate Dubai, Bollywood Parks Dubai and Legoland Dubai are expected to capitalize on the already-booming tourist and retail industries in Dubai, where property prices rose at the fastest rate in the world in 2013.
But Asia beckons, hence the QIA’s move to join forces with CITIC Group. And while QIA kicked in $5 billion to the new joint fund, that’s apparently the tip of the iceberg for Qatar’s possible investments in the region. And that could be indicative of China’s interest in the joint venture.
“The timing of this announcement is also reflective of structural changes that have been enacted in China over recent years. Many of these changes have been designed to attract further flows of foreign capital into their markets. Notable developments include the opening up of the China A-share stock market through Shanghai’s HK stock connect in November and an increase in its qualified foreign institutional investor program, RQFII,” Moeller said.
“All these changes suggest that China is looking for further ways to attract greater external investment into the country. Either by design or necessity, several state-owned enterprises have also sought external capital after many years of expansion largely fueled by debt, while several financial organizations have been looking to recapitalize through equity investments. So, there has been a clear increase in the opportunity set for investment in China,” he said.
Amid all the activity at the QIA was also the replacement of Al-Sayed at the helm in early December. Qatar’s emir, Sheikh Tamim bin Hamad Al Thani, named Sheikh Abdullah bin Mohamed bin Saud Al Thani, his half brother, as the new head of the QIA and has also ordered changes in its board of directors.
But the changes don’t appear to indicate any change in the QIA’s already-proposed investment strategy—at least not yet. The moves are seen more as a consolidation of the new emir’s power after his father abdicated, leaving the rule of Qatar to his son a little more than a year ago. And Al-Sayed is to leave QIA behind to become an advisor to the emir, although he will retain the title of minister of state, which he held while in charge of the QIA.
While Qatar’s QE Index fell into a bear market at mid-December, pushed by plunging oil prices, those investments the QIA has already made elsewhere in the world appear more and more to be wise decisions—particularly since Qatar has said it plans to spend $210 billion over seven years on roads, stadiums, a rail network and a new city before it hosts the 2022 World Cup.