Kuwait's $112bn Pension Fund Has Cash To Burn After Revamp

Kuwait’s $112 billion 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 $20 billion 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 $7.3 billion in the three months through June, an almost fourfold increase from a year earlier.

The fund aims to have 12% to 17% of its portfolio in real estate, followed by private equity at between 8% and 13%, and infrastructure at 3% to 10%, 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% of its investments, which the fund aims to cut to 4% over the next seven months, he said. At one stage the fund had a “catastrophic” 41% of cash available for investments, Al-Nisf said, instead of being deployed into asset classes that could make higher returns.

PIFSS hired Cambridge Associates LLC 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 LLC.

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.

Employee numbers in the investment division were increased to over 100 in its investment division - more than that of the two biggest asset managers in the oil-rich country combined - while the unit was split into eight departments from three.

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% and 60% 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% 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.”