Kuwait’s $112bn pension fund has cash to burn after revamp

Kuwait’s $112bn pension fund plans to boost investments in private equity and infrastructure following an overhaul that left it sitting on too much cash.

A new management team was brought in during 2017 to transform the state-owned institution after a corruption scandal involving a previous manager.

The fund has since exited more than $20bn in questionable deals in a “major clean-up” of its portfolio, according to Raed Al-Nisf, deputy general manager for investments and operations.

“It’s no longer a one-man show, and will never be again,” he said in an interview. “In the past, it was a sleeping giant, and no one wanted to wake it.”

The revamp is paying off.

The Public Institution for Social Security, also known as PIFSS, had a record investment profit of $7.3bn in the three months through June, an almost fourfold increase from a year earlier.

The fund aims to have 12 per cent to 17 per cent of its portfolio in real estate, followed by private equity at between 8 per cent and 13 per cent, and infrastructure at 3 per cent to 10 per cent, he said, without detailing current holdings.

“This is a moving target, but it’s a range we’re normally in,” Al-Nisf said. “We’re long-term investors by definition, we don’t have a need for cash on a yearly basis.”

Cash accounts for about 11.5 per cent of its investments, which the fund aims to cut to 4 per cent over the next seven months, he said.

At one stage the fund had a “catastrophic” 41 per cent of cash available for investments, Al-Nisf said, instead of being deployed into asset classes that could make higher returns.

PIFSS hired Cambridge Associates in 2016 to advise it on an asset-allocation strategy, and when completed in March 2021, the fund will start with US-based consultancy Mercer.

Private Equity Stakes Owned by PIFSS’ Wafra
25% of Stone Point Capital LLC
25% of Oak Hill Advisors
5% of ArcLight Capital Partners LLC
12% of Dyal Capital Partners
10% of TowerBrook Capital Partners LP

Since 2017, the fund has implemented policies to improve disclosure, avoid conflicts of interest and introduced whistle-blowing processes.

It decentralised investment decision making to a four-member committee, while bolstering employee numbers to above 100 in its investment division, more than that of the two biggest asset managers in the oil-rich country combined.

Former Finance Minister Anas Al-Saleh triggered the restructuring process, and two years later his successor, Nayef Al-Hajraf, placed Meshaal Al-Othman at the helm, appointing him director general after two years as chief investment officer.

‘Follow Opportunity’
Between 40 per cent and 60 per cent of the fund’s portfolio is in stocks and fixed income. PIFSS is the second-largest investor in the local market after Kuwait Investment Authority, the world’s fourth-largest sovereign wealth fund.

It has holdings in more than 40 per cent of the stocks on the domestic exchange although most of its portfolio is offshore.

It has a different mandate to the sovereign wealth fund because it handles pensioners’ savings, Al-Nisf said.

“We aim to have the best stocks and best-performing managers, it’s not a political role,” he said. “We follow opportunity.”