Kuwait's $112 billion Public Institution for Social Security 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 cleanup" 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," Mr. 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, Mr. 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 U.S.-based consultancy Mercer.
Since 2017, the fund has implemented policies to improve disclosure, avoid conflicts of interest and introduced whistleblowing processes. It decentralized investment decision-making to a four-member committee.
Employee numbers in the investment division were increased to over 100 — 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.
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, Kuwait City, the world's fourth-largest sovereign wealth fund with assets of $534 billion, according to the Sovereign Wealth Fund Institute. 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, Mr. Nisf said.
"We aim to have the best stocks and best-performing managers, it's not a political role," he said. "We follow opportunity."
