KIA plans to cut reliance on external managers

Bloomberg

Kuwait Investment Authority is planning to manage more of its own assets as the world’s fifth-largest sovereign wealth fund seeks to take more risk to boost returns.
The KIA, as the fund is known, wants to increase the allocation of funds managed in-house to as much as 8 percent from 1 or 2 percent at present, Managing Director Bader Al Saad said in an interview with Bloomberg Television on Wednesday at the World Economic Forum in Davos, Switzerland. The KIA has $592 billion of assets, according to the Sovereign Wealth Fund Institute, meaning $35 billion could be withdrawn from external managers.
“Why do I have to pay extra fees for less return?” he said. The shift translates into “a big lump sum but it’s small compared to the core portfolio,” Al Saad said.
The KIA joins other wealth funds and institutional investors seeking to manage more assets internally. The California Public Employees’ Retirement System, the largest US pension, said last week it was developing plans to shift as much as $30 billion from external to internal managers. The Abu Dhabi Investment Authority, the world’s second-biggest wealth fund, is investing in areas such as real estate and private equity, reducing its reliance on outside managers each year.

PRIVATE ASSETS
The KIA is taking a similar approach. Al Saad said the KIA is investing more in private assets and global infrastructure projects, arguing that “we need to take more risk in order to maintain the returns.”
Al Saad said he doesn’t think the fund can match the returns of the past decade over the next 10 years. “That’s why we want to do something different. That’s why we are expanding in infrastructure, in credit.”
The KIA started as a Bank of England account dedicated to receiving oil money in 1953, according to its website. It has investments in areas including equities, bonds, real-estate and infrastructure. The fund, which has been investing in ports, airports and power distribution, says boosting US investment is contingent upon President-Elect Donald Trump holding to a promise to increase infrastructure spending.
“To write a big check, you need to see projects in infrastructure,’’ Al Saad said. “Otherwise there’s no size. You need scale.’’