Kuwaitis build on commitment to UK infrastructure

The pomp was impressive. The 400 visitors to the 60th birthday celebration of the Kuwait Investment Office at London’s Guildhall on Friday were greeted with walls of floral arrangements, free-flowing pomegranate juice and a guest-of-honour speech by Kuwaiti prime minister Sheikh Jaber al-Sabah.

But for Kuwait’s oil-funded sovereign wealth funds – London-based KIO and its parent group the Kuwait Investment Authority – the substance matches the style when it comes to UK commitment.

In a rare interview on the eve of the anniversary celebration, KIA managing director Bader al-Saad and KIO boss Osama al-Ayoub made clear that the UK, and more specifically the infrastructure sector, is a priority. “We think the infrastructure environment in the UK is one of the best environments globally,” Mr Saad said. “Any infrastructure investor would rather be in a regulatory environment that is stable, time-tested and transparent.”

The fund’s first attempted incursion into the sector – the proposed buyout of water group Severn Trent alongside the likes of Canadian infrastructure specialist Borealis – was thwarted in early June.

The KIA will not be drawn on whether it remains interested, stressing that Takeover Panel rules do not allow a repeat approach for at least six months. “It’s a chapter and we’ve closed it,” said Mr Ayoub cryptically. Might there be other chapters in the same book? “It could be a book of one chapter,” is his smiling response.

Whatever happens in that affair, however, the KIA has made a fresh commitment to invest $5bn in infrastructure “mostly in the UK” over the next three to five years. It is a substantial plan, but it is a tiny proportion of the KIA’s overall firepower.

According to the latest estimates, the fund has $400bn under management, with investments ranging across all asset classes and all parts of the world.

The KIA sees itself on a par with funds such as Norway’s NBIM and the Abu Dhabi Investment Authority – more conservative than some other Middle East and Asian rivals, and unencumbered by government interference. “We are not politicians, we are driven by commercial strategy. We never received a political order to invest,” said Mr Ayoub.

The KIA’s overall assets are essentially run as two operations – one a Middle East-focused “general reserve fund” which is operated solely by the KIA itself; the other an internationally focused “future generation fund”, co-run by the KIA and KIO.

The future generation fund by law receives 10 per cent of the country’s oil revenues – about $11bn – but in the past year the share was increased on a one-off basis to 25 per cent, or up to $25bn.

Asia, Africa and Latin America have become focus points, especially the financial sector.

The fund has participated in three of Asia’s biggest IPOs of recent years – buying significant stakes in China’s ICBC and Agricultural Bank of China, as well as Hong-Kong based AIA.

The KIA is also a major private equity investor, typically committing $300m-$500m apiece to big funds. It has also bought into firms themselves, including US-based TPG Capital and Providence and British group CVC Capital Partners.

Tougher regulations and a bleak economic outlook have convinced Mr Saad that “we shouldn’t expect a lot from the banks” in the west, but there is one exception. The KIA sounds in no hurry to exit a financial crisis-induced investment in Bank of America: “The outlook for the US economy over the next five years is relatively promising. Banking is a good proxy for the economy.”

When the prime minister arrived at the lunch in the majestic old library, Mr Saad swept through the crowds holding another man by the hand, so eager was he to introduce him to the sheikh.

That man was the UK head of Borealis, proof positive of the KIA’s UK infrastructure intentions – and evidence, perhaps, that the Severn Trent approach might well be revived after all.

Reporting by Patrick Jenkins and Anne-Sylvaine Chassany

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