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.