The Kuwait Investment Authority is seeking to invest as much as $5bn directly over the next three to five years in infrastructure assets mostly in the UK, echoing a similar move by Qatar, as sovereign wealth funds look for ways to boost returns amid low interest rates.
The pledge, which highlights the fund’s positive view on UK investment conditions, comes just weeks after a failed £5.3bn takeover offer for British water utility Severn Trent by the KIA and partners Borealis of Canada and Britain’s Universities Superannuation Scheme.
The UK utility, whose board rejected three bids from the consortium saying it did not properly value the company, fits the profile of assets the Middle Eastern fund is eyeing – existing, highly regulated, cash generative infrastructure projects rather than new ones, KIA managing director Bader al-Saad told the Financial Times in London in his first interview with a foreign newspaper.
“We are looking at brownfield projects because of the cash flow streams and to diversify our portfolio, as we don't think there is any money to make in fixed income, because of the zero interest rates,” Mr Saad said. “Development is a different ball game, we are not developers. We are providers of long-term capital.”
The KIA, which on Friday celebrated the 60th anniversary of the establishment of its London arm, the Kuwait Investment Office, is one of the world’s largest sovereign wealth funds with more than $400bn of assets under management, according to estimates.
After more than doubling its asset base organically and returning 9.5 per cent annually over the past 10 years, the KIA is now ready to take on more risks than mostly investing in funds run by other managers. After expanding its reach to emerging markets and all types of assets, a direct exposure in current infrastructure is a relatively cautious step to achieve that goal.
It is building a team of six investment professionals, which will ultimately double, to look at those projects under the helm of Osama al-Ayoub, a former Goldman Sachs banker who heads the KIO.
They will look at “companies that work in industries with a strong regulatory environment – water, power distribution and generation,” Mr Ayoub said, praising the UK for offering the best ecosystem for investors. He added that he is waiting for the outcome of a study by the UK government into ways to reduce development risks in new projects.
Mr Ayoub also said the KIO, which has developed a reputation as a conservative and friendly investor, will always stay clear of hostile bids and will look to partner with other investors, citing the Severn Trent attempt. He declined to comment however on whether the KIO may approach the water company again.
““It’s a chapter and we’ve closed it,” he said.
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