Qatar's investment strategy is due a reboot. In recent years, the sheikhdom has been a fairly average stock-picker, with uninspired investments in western banks, retailers and car makers. Now that falling oil and gas prices are forcing Doha to cut back on spending, the Qatar Investment Authority (QIA) should use its resources more smartly.
Hoovering up trophy European assets has delivered mixed results for the QIA, estimated by the Sovereign Wealth Fund Institute to hold assets worth $256 billion. Total returns from some of its largest direct investments in the likes of Barclays, Credit Suisse, J Sainsbury and Volkswagen have delivered an average total return of only 4.9 per cent over the last five years, according to Eikon data. Stocks like VW and Barclays have also endured hits to their reputation. And, they have provided little in the way of strategic fringe benefits for Qatar's core money-spinner, the energy industry.
An alternative plan would align the QIA's portfolio more closely with the country's vital liquefied natural gas (LNG) sector. Qatar is the world's largest shipper of the fuel, which is chilled to a liquid for export on giant tankers. LNG provides most of Qatar's export income, but prices have suffered from growing domestic shale supplies in the United States and competition from Australia. Delivery prices for LNG in Asia have dropped almost 50 per cent, roughly in line with crude, over the last two years.
To protect its share in large growing economies in Asia, or developed markets such as the UK, where it now accounts for a fifth of supply, the QIA might be better-off taking stakes in large utility customers. Centrica, the obvious UK target because of its status as the country's biggest supplier and as a major customer of Qatar's LNG, is trading more than 20 per cent above its 10-year average on a price-earnings basis. But, Qatar has deep pockets, and Centrica's domestic peer SSE and Germany's E.ON look cheaper.
Utilities are already among the QIA's best-performing assets, but energy stocks account for only a quarter of its top 20 investments. QIA's near-10 per cent stake in Iberdrola, the largest Spanish power group - has delivered the highest total returns among the fund's top five investments in the last year, according to Eikon. If Qatar gets it right, building on this base could wind up making financial as well as strategic sense.
Hoovering up trophy European assets has delivered mixed results for the QIA, estimated by the Sovereign Wealth Fund Institute to hold assets worth $256 billion. Total returns from some of its largest direct investments in the likes of Barclays, Credit Suisse, J Sainsbury and Volkswagen have delivered an average total return of only 4.9 per cent over the last five years, according to Eikon data. Stocks like VW and Barclays have also endured hits to their reputation. And, they have provided little in the way of strategic fringe benefits for Qatar's core money-spinner, the energy industry.
An alternative plan would align the QIA's portfolio more closely with the country's vital liquefied natural gas (LNG) sector. Qatar is the world's largest shipper of the fuel, which is chilled to a liquid for export on giant tankers. LNG provides most of Qatar's export income, but prices have suffered from growing domestic shale supplies in the United States and competition from Australia. Delivery prices for LNG in Asia have dropped almost 50 per cent, roughly in line with crude, over the last two years.
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Utilities are already among the QIA's best-performing assets, but energy stocks account for only a quarter of its top 20 investments. QIA's near-10 per cent stake in Iberdrola, the largest Spanish power group - has delivered the highest total returns among the fund's top five investments in the last year, according to Eikon. If Qatar gets it right, building on this base could wind up making financial as well as strategic sense.