Qatar Investment Authority has about $334bn of assets & has been reviewing its strategy in light of falling oil prices
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 percent of Glencore, 17 percent of Volkswagen ordinary shares and 12.8 percent of its preference shares.
As recently as March, VW's preference shares were trading above 260 euros ($291) but they dipped again on Tuesday to close at 95.20 euros. Glencore rallied 16.9 percent 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.
QIA declined to comment for this article.
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 percent 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.
VW's stock price is still well above the 60 euro level when the QIA bought into the company in August 2009, although Glencore hit an all-time low on Monday against an initial listing price of 5.30 pounds.
The fund's mission statement is: "to invest, manage and grow Qatar's reserves to create long-term value for the state and future generations" - something the source said meant it would be happy to ride out short-term volatility.
QIA's participation in Glencore's $2.5 billion rights issue earlier this month seemed to indicate the fund had no plan to turn its back on the Swiss-based miner.
However, the QIA's intentions and operations are largely a mystery. It has predominantly been a reserved investor which has shunned public statements on its investments, although a notable exception was when it voiced concern about the terms for the merging of Glencore and Xstrata in 2012.
It has made no public comments on either the VW or Glencore situations.
The QIA has never disclosed results or the size of its portfolio. Details of what it owns come from disclosures to stock markets when assets are listed and from media reports, making an overall assessment of the impact difficult.
In October last year, a report by political risk firm GeoEconomica said the QIA was the only sovereign fund not compliant with the Santiago Principles, a voluntary code of practice on governance and transparency.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.