GCC investment funds to shift assets to US market

Friday 18/12/2015
Artist’s rendering of the $8.6 billion Manhattan West project in New York, to be 40% owned by the Qatar Investment Authority.

New York - The Qatar Investment Au­thority (QIA) and other energy-generated Gulf sovereign wealth funds may increase acquisi­tions in the United States to benefit from its relatively strong economy and to diversify assets, observers in New York’s financial community said.
The QIA announced October 28th that it was taking a 44% stake in a Manhattan property project that could be worth $8.6 billion once completed. The acquisition came a month after the QIA, which analysts say controls $200 bil­lion-$300 billion in assets, opened an office in New York and outlined plans to invest $35 billion in the United States over the next five years.
“I would not be surprised to see QIA double that number, especial­ly as Qatar gets closer to the 2022 FIFA World Cup, which stands to benefit from investments in US technologies and services,” said David Hamod, president of the Na­tional US-Arab Chamber of Com­merce (NUSACC) in Washington.
Hamod, who works closely with the Gulf Cooperation Coun­cil (GCC) financial sector, said the QIA and other Gulf wealth funds may expand beyond Manhattan real estate purchases and invest in medium-sized US companies.
The growth in the United States is part of an attempt by the QIA and the other funds to seek steadier re­turns to counter the loss in income from drop in oil prices over the past 18 months and with prospects for global economic growth uncer­tain.
Lower crude revenues and slow­er global growth will decrease the assets of wealth funds and cen­tral banks by $1.2 trillion — almost 7% — by the end of the year, Swiss bank UBS said. The fall in sover­eign assets will likely continue in 2016, partly triggered by a fall in investment returns, UBS said.
As part of an apparent shift away from Europe, whose economy is weaker than that of the United States, the QIA has been selling assets. In October, it sold its 10% stake in German builder Hochtief for about $540 million.
It also announced plans to sell a stake in French construction com­pany Vinci.
The Doha-based fund has suf­fered as much as $12 billion in losses from stakes in German car­maker Volkswagen, Swiss com­modities trader Glencore and the Agricultural Bank of China, the Fi­nancial Times reported in Septem­ber. The newspaper cited its own calculations based on Bloomberg compilations of regulatory filings.
The oil price drop is driving oth­er Gulf sovereign funds to reassess their European operations. The Abu Dhabi Investment Authority, the world’s second-largest wealth fund, said recently it was plan­ning to close its office in London. The fund said, however, the move won’t affect its investments and commitments in the United King­dom.
For Hamod, the United States is a favourable target market for wealth funds given that it is out­performing other regions econom­ically and offering a wider choice of investment opportunities across multiple asset classes. “Anecdotal­ly speaking, our chamber is seeing more direct investment in the USA by Arab governments and individ­uals than at any time in memory,” he added.
For QIA, an interest in Manhat­tan is understandable in light of rising property prices.
Douglas Elliman, a major US real estate brokerage, said in October that the average price of a square foot of real estate in Manhattan hit a record $1,497 in the third quarter of 2015.
That was helped by insufficient inventory, especially for houses priced at less than $1 million, which is bolstering competition for homes and raising the number of all-cash commitments from buy­ers.
QIA said on October 28th that it is taking a 44% stake in a project called Manhattan West from a sub­sidiary of investment firm Brook­field Property Partners.
The project is a 650,000-square-metre development that will in­clude two office towers, stores, rooftop gardens and restaurants. It will also have an upscale 62-sto­rey residential building equipped with a basketball court, climbing wall and roof deck with grills. It is slated for completion in 2018.
The Midtown Manhattan devel­opment is one block from Pennsyl­vania Station, the main intercity railroad station in New York.
QIA has repeatedly indicated in recent months its interest in the US market. In the statement announc­ing the purchase of a part of Man­hattan West, Sheikh Abdullah bin Mohammed al-Thani, chief execu­tive officer of the QIA, said the ac­quisition is a “further demonstra­tion of QIA’s long-term confidence in the US market”.
In September, the QIA said it was backing a commercial real estate investment trust run by a subsidi­ary of Apollo Global Management, the private equity and distressed debt investor led by billionaire Leon Black. The REIT invests in commercial mortgages, commer­cial mortgage-backed securities and subordinate financings.