I keep a watching brief on small London investment trust, Qatar Investment Fund. Its market cap is a relatively diminutive $94m and it’s consistently traded at a discount to NAV, currently running at around 16%. The fund is heavily focused on the Qatar banking sector (around 38% of assets) as well as real estate (10%0 and Telecoms (7.7%). Crucially the fund has always invested a small amount of money OUTSIDE Qatar, namely 7% in the UAE – along with 10% in cash.
Now it doesn’t take a genius at this point to ask two pointed questions. The first is that the fund is fairly small – well under the all-important £100m mark – and has in truth largely flown under the radar of most big wealth advisers. It’s biggest investors have tended to be multi-fund managers such as City of London, and Lazards plus the inevitable Qatar Investment Authority stake. So, this poses the question of whether the fund is economic in its current configuration.
Which might be made worse by the next question – that rather unfortunate Qatar blockade issue. I can’t say I am an expert on the intricacies of the Gulf but it does rather seem that Qatar is being unfairly ganged up on by its bigger neighbours. Given that all the key players are rich autocracies, I can’t say I’m terribly enthused by any of the major players in this sad and sorry fiasco but it does seem that something has gone horribly wrong with the relationship between the Saudi’s and their distant Qatari cousins. Ever since this affair kicked off, the share price of this fund has drooped, by about 10% at the last count.
No doubt the investment managers at the fund will advance a sensible contrarian line – “it’s at precisely these moments when an extra investment makes sense!”. And I’m sure they are right but I can also see prospective investors saying, “come back to me and have a chat when the confrontation is quietening down and you’ve made the fund bigger”.
So, given this ‘difficult’ backdrop, it’s no surprise that yesterday the fund announced some big changes. The most important are that it will “change its investment policy from a largely Qatar-focused investment strategy to a broader Gulf Cooperation Council (“GCC”) investment strategy. Currently, the investment policy enables the Company to invest up to 15% of the Company in GCC countries (namely Saudi Arabia, Kuwait, UAE, Oman and Bahrain) other than Qatar. The proposed change in investment policy will remove the 15% limit and enable the Company to increase its investment allocation to other GCC countries and provide the Investment Adviser with a wider investment universe and more flexibility to identify attractive opportunities in the GCC region”.
This isn’t the only change. The fund is also making a tender offer for up to 10% of the issued Share Capital of the Company and is “cancelling the discontinuation vote currently scheduled for the 2018 annual general meeting and replacing it with a continuation vote for the 2021 annual general meeting and every three years thereafter”. This will be accompanied by a tender offer to shareholders for up to 100% of the Company’s share capital in 2020 subject to Shareholder approval to be sought in 2020. Last but by no means least the fund is proposing to change its name to the Gulf Investment Fund PLC.
The wider investment remit makes obvious sense. The local benchmark index is the S&P GCC Composite Index which has 298 constituents, and index weighting by country as follows: Saudi Arabia (56.6%), United Arab Emirates (16.5%), Qatar (11.8%), Kuwait (10.2%), Bahrain (2.6%) and Oman (2.3%). Crucially the fund’s managers already have experience of investing in the wider region, so should be able to make the switch very quickly. The broader question is whether the other changes will help make the fund more investable – I like the idea of the 100% tender in 2020, giving the manager a good three years to make a mark in terms of returns. The broader universe will also no doubt help with marketing the fund – which might , in turn, elp narrow that discount.