Qatar fund ‘surging ahead, needs to diversify’
Doha, June 24, 2010
The $70-billion Qatar Investment Authority (QIA) is set to focus increasingly on Asia and other emerging markets, and will have to diversify away from 'trophy assets' to ensure sustainable growth, said analysts.
It may invest $2.8 billion in Agricultural Bank of China's initial public offering (IPO) in an important emerging market foray, and has closed several key deals in east Asia in recent months.
QIA has made a string of headline-grabbing investments over the past couple of years, including iconic London department store Harrods, which it acquired in May for about 1.5 billion pounds, and a 10-percent stake in car maker Porsche, bought for $10 billion last September.
'We see Qatar continuing to deploy capital abroad at a rapid clip, while other sovereign funds are nursing their larger portfolios negatively impacted by the crisis,' said Khuram Maqsood, a former investment director at Dubai-based investment company.
This is both because Qatar has enough money and the fact that its existing investment portfolios are not very large compared with its other Gulf peers, he said.
The world's largest exporter of liquefied natural gas (LNG) boasted one of the fastest growing economies worldwide in 2009.
It grew at an average pace of 17.4 percent over the past five years and it is set to largely outperform other Gulf energy producers.
'I'd expect them to be looking at a broad range of assets as they build up a large, balanced portfolio,' said Simon Williams, chief economist at HSBC in Dubai.
'Qatar will be a major player in global markets for many years to come. It is a small economy that is still in the process of capitalising on its enormous hydrocarbon resources,' he said.
Recent purchases include the Park House development on London's Oxford Street by Qatari property company Barwa Real Estate, a unit of the fund, for 250 million pounds ($370 million).
'They've been very smart about picking trophy assets, the ones you can only get your hands on in distressed times,' said Emad Mansour, chief investment officer of Qatar First Investment Bank.
In addition to its Harrods stake, Qatar also has stakes in supermarket chain J. Sainsbury and the London Stock Exchange.
But QIA faces several challenges as it evolves as a mature sovereign fund like some of its peers. Emerging market investments, especially in financial sector, remain a challenging business environment.
Though the investments offer strong revenue growth in some segments, they also present hurdles in the form of a quickly changing regulatory environment, fast-evolving business models and sharply increasing market competition.
Also, focusing on so-called 'trophy assets' may not be a viable strategy always, especially during challenging times. The fund, set up in 2005, is too young to have established a credible track record but may need to scale down on its aggressive strategy as it evolves further.
'Portfolio management, at the end of the day, is a very difficult task. Some high profile assets may run into trouble during challenging times. In such cases, one will have to consider an investment strategy that is not focused so much with brand names,' said Maqsood.
'You cannot always be betting on Ferraris. You also have to look at Toyotas and Mini Coopers at times.'
The tiny state began its entry into Asia earlier this year: in April, Qatar Diar, an investment arm of QIA, closed a $275-million acquisition of the historic Raffles Hotel in Singapore.
Other recent forays into Asia include a deal in Malaysia and a $1-billion Indonesian fund to invest in infrastructure and natural resources. More such deals are expected as investment opportunities in the developed world slow down.
'In the past, investments in the US or Europe had promised solidity and stability. In light of the crisis it has become clear that extreme market movements can occur anywhere.
Stability as a competitive advantage of US and European markets is a thing of the past,' said Steffen Kern, economist at Deutsche Bank in Frankfurt.
QIA's investment in the initial public offering (IPO) of Agricultural Bank of China is seen as a long-term bet to the growth prospects of the Asian giant and also signals further cooperation between the two countries in future.
Qatar Holding, an investment arm of QIA, plans to open an office in China to promote its activities in Asia, according to reports.
'China is a powerful block, and it unlocks a lot of Asia.
The whole country is so big that part of it is always booming,' said Steven Humphrey, head of construction consultancy Davis Langdon's Qatar office. – Reuters