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Kuwait’s Sovereign Wealth Fund Is Hungry for (Private) Deals

Sorry, hedge funds and public equity managers: the KIA is focusing on infrastructure and technology this year.

  • Jess Delaney

One of the world’s largest sovereign wealth funds has announced where it’s looking to find alpha in the coming year — and it’s not in the public markets.

In what is likely a calculated move to drum up deal flow, the $592 billion Kuwait Investment Authority has broken from its characteristic silence in recent weeks with a clear statement of intent. This week Anas Al Saleh, Kuwait’s finance minister and the KIA’s chairman, told Reuters the sovereign wealth fund plans to ramp up investment in infrastructure and pre-IPO technology companies in 2017.

Like many asset allocators in recent years, the KIA — the world’s fourth-biggest sovereign wealth fund, as ranked by the Sovereign Wealth Center — has been expanding into private market investments and building its internal management capabilities to find yield and save on fees. In a Bloomberg television interview on the sidelines of the World Economic Forum in Davos in January, KIA’s managing director Bader Al Saad expressed frustration with returns in public markets and said he didn’t think the KIA could repeat its returns for the last 10 years without plunging into unlisted investments.

“I have no choice,” Al Saad said in the interview. “The alpha is there.”

Three years ago the KIA established a $2 billion portfolio to make direct investments in venture capital, Al Saad stated, though he noted that the fund would not participate in initial fundraising rounds but would instead seek out later rounds of investing, “after [the company raising money] stabilizes and has positive cash flow.” Currently 1-2 percent of the KIA’s assets are managed in-house, but Al Saad said he would like to see that grow to 7 or 8 percent (over $40 billion).

The KIA has invested about $3 billion in infrastructure since it first tiptoed into the asset class three years ago, Al Saad said.

That’s when KIA started to invest in infrastructure in the U.K., Spain, and Australia; it has since invested about $3 billion in projects including airports, seaports, and power distribution.

While Al Saad is bullish on alternative investments, he has some bad news for hedge funds: The KIA is unlikely to increase its allocation to the asset class any time soon. “I don’t think there is big alpha in hedge funds,” he said in the interview.