Reuters
Dubai

The 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 $5.8bn off the QIA’s holdings since September 18, according to Thomson Reuters data.
Much has been made of the scale of the QIA’s paper losses at a time lower oil prices are reducing the flow of money into Gulf sovereign wealth funds.
The QIA has 8.2% of Glencore, 17% of Volkswagen ordinary shares and 12.8% of its preference shares.
As recently as March, VW’s preference shares were trading above €260 but they dipped again on Tuesday to close at €95.20. Glencore rallied 16.9% on Tuesday but its closing price of £0.8025 was still well below the £3.16 recorded in early May.
The QIA, which has about $334bn 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, the QIA said Qatar was committed to putting $35bn into the US over five years. In November last year, the fund also said it would invest $20bn in Asia over the next five years.
The slide in the two European blue-chip stocks will only heighten the need to continue the QIA’s evolution from being a fund that had about 80% of its assets deployed on the European continent as recently as late 2013, industry sources said.
The 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 is 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.
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% stake in the company owning three of London’s most exclusive hotels: Claridge’s, The Berkeley and The Connaught.
The reduced flow of cash available for investment 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 the 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 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.
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.
The QIA’s participation in Glencore’s $2.5bn rights issue earlier this month seemed to indicate the fund had no plan to turn its back on the Swiss-based miner.