Qatar’s Surprising Strategy

Ashby Monk

I admit it, I’m a ‘random walker’; my measly nest egg is parked in a variety of index funds and ETFs. I guess I just have a personal bias towards passive management over active management. Given this bias, you can imagine my ongoing astonishment over the Qatar Investment Authority’s investment philosophy.

This $70 billion SWF seems to have made ‘stock picking’ the cornerstone of its overall investment strategy. For example, the QIA has invested roughly $12 billion in Barclays and $10 billion in Volkswagen/Porsche alone. On top of that, it has a few billion in Sainsbury’s, a few billion in Harrods, and it is about to put nearly three billion into the AgBank IPO.

This ‘strategic’ investment philosophy doesn’t quite jive with the QIA’s stated policy, which says that its mission is to “diversify” Qatar’s wealth. So, what gives? Why would the QIA — or any SWF for that matter — be in the business of making large bets on specific firms? Why would it be willing to gamble – it’s hard to call a $2.8 billion investment in the AgBank IPO anything other than a wager, in my opinion – with the country’s sovereign wealth?

The only justification that makes any sense – at least to my simple mind – would have to be extra-financial. By that I mean that the QIA may be investing for more than just investment returns; it is probably investing for the benefit of Qatar as a nation. For example, the investment in Volkswagen could be as much about forging a strategic partnership between Qatar and a world-renowned German car maker as it is about investment returns.

And, if you think about it, this is a pretty smart way to use a SWF. How else could this tiny island nation hope to be a ‘player’ in the global car industry? Clearly, making an eye-poppingly large investment in one of the premier firms is one way. After all, Qatar now has representation on the company board.

In this way, Qatar seems to be using its SWF to extend its ‘sovereignty’ extra-territorially. As Adam Dixon and I argue in a forthcoming paper, the actions of certain SWFs reflect a recognition on the part of nation-states, such as Qatar, that their economic and social wellbeing has become dependent on, or at least vulnerable to, the functioning of foreign markets and the behavior of foreign countries and firms. Through the SWF, nation-states can engage with these foreign entities extra-territorially, thereby minimizing any sovereign deficit that has arisen due to globalization. It’s actually a pretty interesting use for a SWF.

4 Responses to “Qatar’s Surprising Strategy”

  1. 1 Rien Huizer June 28, 2010 at 5:57 am

    As mentioned before, countries with tiny, tribal populations of citizens (most qatari residents are contract workers)and oil/gas reserves as their only serious source of future revenue, have a different investment opportunity than say, China. The roughly 100K tribal (but not voiceless)adult males with qatari passports are also a different audience than 4 million Norwegian democrats. For a democracy, the only realistic investment strategy (from a political point of view) is pension fund-like. A tribe is more likely to be charmed by big stakes/trophies in well known brands. Right, but why this investment in Ag Bank? Where’s the attraction? Maybe the same logic that drives Qatar’s exotic foreign policy.

    But sovereignty? The tribe can easily afford very comfortable relocation to Marbella, generous annuities for all members and leave a few members behind to
    watch the LNG plant. Maybe sovereignty needs to be redefined.

  1. 1 West Still Afraid of SWFs? Sometimes « Oxford SWF Project Trackback on September 15, 2010 at 11:03 am
  2. 2 QIA: The Emirate’s Intriguing Wealth Fund « Oxford SWF Project Trackback on October 25, 2010 at 10:28 am
  3. 3 Qatar Investment Authority Wikileaked « Oxford SWF Project Trackback on July 12, 2011 at 11:24 am

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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