Inside the Kuwait Investment Authority: “There is chaos now”

Inside the Kuwait Investment Authority: "There is chaos now"

For decades, the Kuwait Investment Authority kept a low profile as it earned a reputation as one of the most powerful and respected sovereign wealth funds in the oil-rich Gulf.

But last week, the KIA abruptly fired Saleh al-Ateeqi, the head of its London investment arm, the Kuwait Investment Office, thrusting the secretive fund into the spotlight.

Founded in 1953, the KIA is one of the most influential institutions in the Gulf state and the guardian of Kuwait’s wealth for the post-oil future. With assets estimated at $700 billion or more, less than half of which are managed outside London, the fund has investments around the world, from stakes in asset managers such as BlackRock to critical infrastructure such as ports British Associates of the United Kingdom. In 2008, when Western markets fell in value during the Great Financial Crisis, he also took shares in Wall Street banks Citigroup and Merrill Lynch.

But with stock markets in turmoil once again, Ateeqi’s departure has exposed the challenges facing the fund as it grapples with internal wrangling over attempts at modernization, according to more than a dozen current staff and former interviewee for the Financial Times.

The fund has not explained its decision to fire Ateeqi, which capped a four-year period in which the KIO was embroiled in a series of legal battles with former employees, internal investigations and growing tensions between the London office and leadership in Kuwait.

Ateeqi’s supporters said his dismissal was politically motivated, blaming a power struggle between those trying to reform the fund and an old KIA guard.

“There is chaos now, with various factions fighting each other,” said a fund manager who invests on behalf of the KIA.

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The changes began to affect the traditionally conservative fund starting in 2017, people familiar with the matter say, when Bader al-Saad, who had been the KIA’s dominant figure for more than a decade, stepped down as director general His successor, Farouk Bastaki, and a newly appointed board wanted to modernize the fund, citizens say.

The new board members had been surprised to find there was weak compliance and risk monitoring and no effective performance measures for internal fund managers, a person close to the KIA said.

“These deficiencies were extraordinary” for one of the world’s largest sovereign wealth funds, another person close to KIA and Ateeqi said.

With Bastaki in place, Ateeqi was hired from management consultant McKinsey in 2018 and given a mandate to modernize the London office’s operations, the person said.

Under Ateeqi, the London outpost was chosen to become a “primary springboard” for developing new talent, upgrading trading and compliance systems, many of which were still manual, and implementing new standards, including a performance-linked compensation system, they added. .

Ateeqi added an investment committee along with a chief investment officer, chief technology officer, head of asset allocation and head of strategy.

“It was completely absurd that if you look at all the metrics in terms of compensation of the fund managers that have been there … almost 25, 30 years ago, it had not changed,” said the second person close to KIA and Ateeqi. .

The headquarters of the Kuwait Investment Authority in Kuwait CityThe headquarters of the Kuwait Investment Authority in Kuwait City. The KIA is one of the most influential institutions in the country © Bassam Zidan Ahlawy/Bloomberg

Ateeqi also wanted to strengthen its oversight of KIO’s investments and developed a “CEO dashboard” that would allow it to monitor the decisions of KIO’s fund managers in real time, experts say. The project, to be completed in the fall of 2021, was opposed by senior IT staff due in part to its estimated cost of $300,000. The IT chief has since resigned after taking a leave of absence due to stress and after his department repeatedly clashed with Ateeqi over costs and direction to redesign KIO’s systems.

Ateeqi declined to comment for this article. The KIA did not respond to multiple requests for comment.

Tensions rise in the background

Ateeqi’s management approach sparked resentment within KIA and led to an exodus of staff from the London office, according to current and former employees.

At least 53 full-time employees left over the past four years from a team of about 100, including 10 members of the human resources team, according to people with knowledge of the situation, a marked shift for an organization where the people tend to stay. in his work for more than a decade.

A person close to Ateeqi insisted that turnover was still below the UK financial sector average during his tenure and that the previous low level had contributed to the organisation’s problems.

His time in charge of the KIO polarized opinion. Current and former employees said Ateeqi, a Wharton graduate who once worked as an adviser to former UK Prime Minister Tony Blair, had shaken up a sleepy organization and supported high performers.

But others described a turbulent and dysfunctional work environment riddled with bullying. They recall Ateeqi yelling at them at project and investment meetings, saying they were quickly sidelined if they pushed back against decision-making, claims rejected by Ateeqi’s supporters.

“The culture of the office has changed dramatically from what it was. Within six months of arriving, [Ateeqi] he started wielding the ax and since then it’s not the same place,” explains a person who has worked at the KIO in reference to employee departures. “The culture is horrible.”

A member of KIO’s strategy team, Yanni Legbelos, became a central source of tension with Ateeqi, clashing with him over culture and leadership in the London office and filing complaints of intimidation, exits from ’employees and inexperienced hires with top KIA executives in Kuwait.

On Tuesday, after his dismissal, Ateeqi filed a legal complaint in Kuwait against the finance minister and the head of the KIA for failing to remove Legbelos. Ateeqi had previously complained to his bosses about the Greek employee alleging, among other things, that he had misrepresented his role in the London office in dealings with third parties, conflicts of interest and disclosure of state secrets .

Legbelos denies the allegations, saying his former boss had been aware of his background and qualifications for the four years they knew each other.

A person close to Ateeqi said all layoffs in the London office were handled by an outside consultant and that he did not fire anyone.

However, the multiple legal disputes between the KIO and former employees continue in the UK courts. One case revolves around the firing during Ateeqi’s tenure of three top executives for allegedly conspiring to grant unapproved salary increases in the period before he took office but after his predecessor left office. A High Court case is on hold until employment tribunal proceedings, brought by former employees, are concluded.

A beach in KuwaitKIA is the guardian of Kuwait’s wealth for a post-oil future © Bassam Zidan Ahlawy/Bloomberg

In addition to legal proceedings in the UK, the KIO had pressed for the three sacked executives, all of whom are British citizens living in the UK, to be reported to Kuwaiti criminal prosecutors under a law that carries a maximum sentence of life in prison . , according to a 2022 report by the State Audit Office of Kuwait.

The KIA opposed it, however, concerned that criminal prosecutions in Kuwait would create “sovereign complications” with British authorities and “cost the state enormous sums,” according to the same report.

The inner workings of the fund being dissected in public have caused problems in Kuwait, where Ateeqi did not have deep connections, people familiar with the matter say. His relationship with the KIA also appeared to deteriorate after a new board and CEO were appointed in 2021.

Internal investigations initiated

As tensions rose this year, the KIA launched a formal investigation into how the London office was being run, several people with knowledge of the situation said. The investigation began in April, according to one of the people.

Alongside staff turnover, another issue raised by the investigation was the performance of the Satellite fund managed by the London office which takes large positions in companies with higher risk but potentially higher returns, according to the citizens

Neither KIO nor KIA, based in London, make their performance or portfolios public. However, the Satellite fund, which was created eight years ago, has lost between $500 million on an absolute return basis and more than $1 billion against its benchmarks in the year to by March 2022, bringing its portfolio assets to around $7 billion. , according to people familiar with the performance. The S&P 500 rose 10.37% over the same period.

The fund had previously made billions for Kuwait betting on US and European growth stocks and had outperformed benchmarks by several percentage points, the sources said.

One reason for the drop in performance, the same sources say, was a pivot to big bets in Chinese tech stocks from 2020, which have been battered this year, including Alibaba and peer-to-peer lending platform Lufax , the stock price fell. after the list.

A person close to the KIO said the Satellite fund was the best-performing fund in 2022 out of 130 the organization manages. “Investments in the Satellite portfolio are decisions of the investment committee. . . For a single KIO fund to have losses on any scale is not extraordinary,” they said.

“This probe [by the KIA] it’s a clear witch hunt,” said another Kuwaiti ally of Ateeqi. “KIO’s track record speaks for itself: performance during the coronavirus period is good compared to the broader market.”

In response to the escalating conflict, Ateeqi took matters into his own hands, writing to the Quinn Emanuel law firm to launch a separate investigation into Legbelos’ complaints. In a report released on July 15, a person with knowledge of the matter said the allegations “were found to have no merit,” adding that Ateeqi’s firing “was clearly to settle scores and remove rivals”. Quinn Emanuel declined to comment.

But that verdict was not enough to change opinion in Kuwait, where the affair has left the KIA exposed to a rare level of public scrutiny and underscored the difficulties of modernizing state institutions that can quickly splinter into factions.

“The big picture is that we are in the mode of changing and dismantling structures built over decades,” the fund manager said. “Important institutions, such as ministries, courts and the KIA are now experiencing changes.”

Additional reporting by Stephen Morris


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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!