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Glencore, VW hits to push Qatar fund to diversify more

DOHA, September 30, 2015

Qatar Investment Authority's hit from the slide in Volkswagen and Glencore shares can only underline the sovereign wealth fund's need to continue to diversify its asset base, industry sources said.

The German carmaker has been pummelled over an emission testing scandal while the miner has came under pressure over its debt load, together wiping $5.8 billion off the Qatar fund's holdings since September 18, according to Thomson Reuters data.

Much has been made of the scale of the Qatar Investment Authority's (QIA) paper losses at a time lower oil prices are reducing the flow of petrodollars into Gulf sovereign wealth funds. QIA has 8.2 per cent of Glencore, 17 per cent of
Volkswagen ordinary shares and 12.8 per cent of its preference shares.

As recently as March, VW's preference shares were trading above 260 euros but they dipped again on Tuesday to close at 95.20 euros. Glencore rallied 16.9 per cent on Tuesday but its closing price of 0.8025 pounds was still well below the 3.16 pounds recorded in early May.

The QIA, which has about $334 billion of assets according to industry tracker the Sovereign Wealth Center, has been reviewing its investment strategy as a result of oil's downward move and following the appointment of a new chief executive in December.

In June, sources said it would set asset allocation targets for the first time and restructure internal decision making.

This week, after opening a New York office, QIA said the Gulf state was committed to putting $35 billion into the United States over five years. In November last year, the fund also said it would invest $20 billion in Asia over the next five years.

The slide in the two European blue-chip stocks will only heighten the need to continue QIA's evolution from being a fund that had about 80 percent of its assets deployed on the European continent as recently as late 2013, industry sources said.

Cash available to fund diversification is not as bountiful as when oil was above $100 a barrel, meaning all Gulf sovereign funds will have to focus more on investing returns from existing assets as opposed to just finding avenues for new money.

One senior banker who regularly pitches investments to the QIA said it was in a healthier state than other funds, because Qatar's wealth was generated from gas which has not seen such big price swings as oil. But the banker said he had noted a reduced appetite for big ticket investments.

"When you go and pitch them something that will need a couple of billion dollars, they don't seem to have that kind of liquidity," he said, speaking on condition of anonymity due to the sensitivity of the subject.

Michael Maduell, president of industry tracker the Sovereign Wealth Fund Institute, agreed, noting the fund was not taking large positions in businesses as it had done when it got into the likes of VW and Glencore - with the exception of hotels.

In April, part of the QIA took a 64 per cent stake in the company owning three of London's most exclusive hotels: Claridge's, The Berkeley and The Connaught.

The reduced flow of petrodollars means the QIA will have to act more like commercial funds, recycling capital from underperforming assets to generate cash for investment, a Gulf-based mergers and acquisitions banker said.

Still, despite the significant reductions in the value of QIA's stakes in Volkswagen and Glencore, the holdings were unlikely to be regarded as underperforming, according to one source who works with the QIA.-Reuters

Tags: VW | Glencore | Qatar fund |

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