Why the world’s oldest sovereign wealth fund is in turmoil: QuickTake

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Kuwait’s sovereign wealth fund, the world’s oldest and one of the largest, has played a key role in preparing OPEC’s fourth-largest producer for a post-oil future and supporting the economy as she was battered by the pandemic. The Kuwait Investment Authority, worth $769 billion, is also a leading global investor, with stakes in BlackRock Inc. and Mercedes-Benz Group AG. In a rare move, he ousted the head of his London branch in July, sending shockwaves through the normally calm and secretive world of Gulf sovereign wealth funds.

1. Why was the fund created?

The Kuwait Investment Board was established in London in 1953, eight years before the country’s independence, to invest excess oil revenues and help diversify the economy. The council was later replaced by the Kuwait Investment Office, and in 1982 the KIA was established as the parent entity. The KIA controls the General Reserve Fund of Kuwait, which is the main depository of oil revenues and pays budgetary expenditures. Additionally, it manages the Future Generations Fund, which is intended to protect the nation’s wealth for a time after its oil runs out and whose assets have grown to over $700 billion. The KIA is overseen by a board that includes the ministers of finance and oil.

2. What does he invest in?

The KIA is the second largest sovereign wealth fund in the Gulf region, with a significant portion of its investments in the United States. During the 2008 crisis, it bought banks including Citigroup Inc. KIO, its London branch, has been a prolific investor over the past year and participated in the US listing of private equity firm TPG Inc. Unlike parent company KIA, KIO invests primarily directly, primarily in public stocks and fixed income securities. KIA holds stakes in ports, airports and power distribution systems globally, as well as in regional companies such as Mobile Telecommunications Co., National Hotels and Kuwait Telecommunications Co. KIA Chief Executive Officer , Ghanem Al-Ghenaiman, said the fund is looking for opportunities in real estate, energy and IT.

3. Why are SWFs such important global investors?

Gulf countries have invested billions of dollars in investments around the world to diversify their economies and sovereign wealth funds have played a key role. The region’s seven largest funds have assets worth more than $3 trillion, including stakes in some of the world’s largest companies. They have been particularly active this year amid broader market volatility and have been part of at least $28.6 billion in acquisitions outside the Middle East and Africa – the most for any period. corresponding never registered. At home, the Kuwait fund plays an even bigger role – the government has been forced to rely on its general reserve fund for funding as it has been unable to tap global markets since its inception Eurobond in 2017.

4. What happened at the KIA?

The fund ousted the head of its London branch, Saleh Al-Ateeqi, and asked him to leave without meeting the standard three-month notice period. A former McKinsey & Co. partner, Al-Ateeqi was hired in 2018 to modernize the KIO. He increased his assets, hired executives including an investment director, but also reportedly clashed with some long-serving employees. Hussain Al-Halabi, has since been appointed head of the British branch. He previously worked at St Martins Property Group, KIA’s London-based property investment company. The KIO manages a third of the KIA’s total assets, according to people familiar with its finances.

5. How can KIO’s strategy change under its new leader?

Under Al-Halabi’s leadership, the fund is likely to return to its conservative roots and abandon many of the performance-related practices introduced by Al-Ateeqi, according to two people with knowledge of the fund, who spoke under the guise of anonymity because they are not allowed to comment. The saga could end in court, with Al-Ateeqi filing a lawsuit with Kuwait’s attorney general against the country’s finance minister, who oversees the KIA. Al-Ateeqi says authorities refused to fire an employee he suspected of spying on the wealth fund. The employee denied the allegations and accused Al-Ateeqi of mismanagement. Separately, three former KIO employees have filed a lawsuit against the fund in London for unfair dismissal, age discrimination and whistleblowing.

(An earlier version of the story has been corrected to show that the Kuwait fund is one of the largest in the world)

More stories like this are available at bloomberg.com

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