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‘Two Strategies Diverged in the Marketplace…

…and the QIA – the QIA took the one less traveled by. And that has made all the difference.’

'...and the QIA – the QIA took the one less traveled by. And that has made all the difference.’

The Qatar Investment Authority has been one of the more interesting global investors of the past few years, making large investments in a handful of strategic companies and assets. This opportunistic behavior has raised some questions about the fund’s long-term strategy, which we can now put to bed. Here are some recent comments by QIA Board member Hussain Al Abdullah on the subject of the QIA's strategy:

"(It) is simple: we are opportunistic. If there is an opportunity in France, we will go to France. If there is an opportunity in Rwanda, we will go to Rwanda.

"We have no asset allocation or geographic allocation. After the financial crisis, all that went in the garbage. Today, it is very difficult for us to see forward. We cannot see more than three months forward."

That’s a pretty remarkable statement. The fund has, in effect, given up on western norms of finance in favor of developing a concentrated portfolio of assets that meet the SWF’s (and country’s) long-term needs and objectives.

Interestingly, this shift in strategy is something my friend Gordon Clark and I wrote about in a 2010 paper entitled “Sovereign Wealth Funds: Form and Function in the 21st Century”. Let me share some blurbage with you to highlight the effect:

“Accordingly, we foresee an eventuality whereby SWFs, cognizant of the fact that western markets no longer offer a reliable investment risk premium, will evolve into different institutions in the coming decades. In effect, we envision SWFs transforming themselves into long‐term investors whose holdings are selected on the basis of their strategic interests (of the fund and the nation) rather than the principles underpinning modern portfolio theory. If so, the future of SWFs will be more like that feared by their critics in the west than the ideal form argued to be consistent with a symbiotic relationship with the west. The costs of this transformation will be felt by global financial markets as liquidity ebbs away and SWFs make their own ways in the world of economic development rather than market arbitrage and speculation.”

In short, as SWFs (and other long-term investors) grow increasingly disenfranchised with the high costs, low returns and misaligned interests embedded in the traditional, western institutions of finance, SWFs may evolve towards new methods and mechanisms for deploying capital. It looks as though the QIA has already gone down this path. The question now looms as to whether this untraveled path is the right one. Time will tell...

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