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Inside the Kuwait Investment Authority: ‘It’s chaos there now’

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

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

Founded in 1953, the KIA is one of the Gulf state’s most influential institutions and guardian of Kuwait’s wealth for a post-oil future. With an estimated $700bn or more in assets, under half of which are managed out of London, the fund has investments across the globe, from stakes in asset managers like BlackRock to critical infrastructure such as the UK’s Associated British Ports. In 2008, as Western markets plunged in value during the great financial crisis, it also snapped up shares in Wall Street banks Citi and Merrill Lynch.

But with stock markets in turmoil once again, the departure of Ateeqi has exposed the challenges the fund faces as it grapples with internal disputes sparked by attempts to modernise, according to more than a dozen current and former staff interviewed by the Financial Times.

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

Ateeqi’s backers said his firing was politically motivated, blaming a power struggle between those attempting to reform the fund and an old guard at the KIA.

“It’s chaos there now, with various factions pitted against one another,” said a fund manager who invests on behalf of the KIA.

Changes started to ripple through the traditionally conservative fund from 2017, say people familiar with the matter, when Bader al-Saad, who had been the dominant figure at the KIA for over a decade, stepped down as managing director. His successor, Farouk Bastaki, and a freshly appointed board, wanted to modernise the fund, say the people.

New members of the board had been shocked to find there was weak compliance and risk control and no effective performance measures for internal fund managers, one person close to the KIA said.

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

With Bastaki in place, Ateeqi was hired from management consultant McKinsey in 2018 and given a mandate to modernise how the London office worked, the person said.

Under Ateeqi, the London outpost was chosen to become a “kind of prime springboard” to develop new talent, update trading and compliance systems — many of which were still manual — and implement new standards, including a compensation system tied to performance, they added.

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

“It was completely absurd that if you take a look at all the metrics in terms of the compensation of fund managers who’ve been there . . . almost 25,30 years ago, it hadn’t changed,” said the second person close to the KIA and Ateeqi.

The Kuwait Investment Authority headquarters in Kuwait City © Bassam Zidan Ahlawy/Bloomberg

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

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

Rising tensions

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

At least 53 full-time staff left over the past four years out of a team of around 100, including 10 members of the human resources team, according to people with knowledge of the situation, a marked change for an organisation where people tended to stay in their jobs for more than a decade.

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

His time in charge of the KIO polarised opinion. The current and former employees said that Ateeqi, a Wharton graduate who once worked as an adviser to Tony Blair, had shaken up a sleepy organisation and supported high performers.

But others described a turbulent, dysfunctional work environment rife with bullying. They remember being shouted at in project and investment meetings by Ateeqi, and said they were quickly sidelined if they pushed back against decision making — assertions rejected by Ateeqi’s supporters.

“The culture of the office has drastically changed from what it was. Within six months of arriving, [Ateeqi] started wielding the axe and it hasn’t been the same place since,” said a person who has worked at the KIO, referring to departures of employees. “The culture is awful.”

One member of the 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 lodging complaints about intimidation, employee departures and inexperienced hires with top KIA executives in Kuwait.

On Tuesday, following his termination, Ateeqi launched a legal complaint in Kuwait against the finance minister and the head of the KIA for their failure to dismiss Legbelos. Ateeqi had previously complained to his bosses about the Greek employee alleging, among other things, that he had misrepresented his role at the London office in dealings with outside 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 over the four years they had known each other.

A person close to Ateeqi said that all dismissals at the London office were handled by an external consultant and that he did not fire anyone.

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

People familiar with the matter say Saleh al-Ateeqi lacked deep connections back in Kuwait © Bassam Zidan Ahlawy/Bloomberg

In addition to the legal processes in the UK, the KIO had pushed for the three fired executives, all of whom are British citizens living in the UK, to be reported to criminal prosecutors in Kuwait under a law which carries a maximum penalty of life imprisonment, according to a 2022 report by Kuwait’s State Audit Bureau.

The move was opposed by the KIA, 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 fund’s inner workings being dissected in public has raised hackles in Kuwait, where Ateeqi lacked deep connections, say people familiar with the matter. His relationship with the KIA also appeared to deteriorate after a new board and managing director were appointed in 2021.

Internal investigations

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

Alongside the staff turnover, another issue raised by the investigation was the performance of the Satellite fund, a fund run by the London office that takes large positions in companies involving higher risk but potentially higher returns, according to the people.

Neither the London-based KIO nor KIA make their performance or portfolios public. However the Satellite Fund — which was set up eight years ago — has lost between $500mn on an absolute return basis and over $1bn compared to its benchmarks, in the year to March 2022, taking the assets in its portfolio to around $7bn, according to people familiar with the performance. The S&P 500 rose 10.37 per cent 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, according to the sources.

One reason for the dip in performance, say the same sources, was a pivot to making sizeable bets on Chinese tech stocks from 2020, which have been battered this year, including Alibaba and a peer-to-peer lending platform Lufax, which saw its share price fall after listing.

A person close to the KIO said that the Satellite fund is the best performing fund in 2022 of the 130 that the organisation manages: “Investments in the Satellite portfolio are investment committee decisions . . . That a single KIO fund is loss making on any scale is not extraordinary.”

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

In response to the escalating conflict, Ateeqi took matters into his own hands, drafting in law firm Quinn Emanuel to launch a separate investigation into the complaints by Legbelos. The allegations “were found to have no merit” in a report delivered on July 15, a person with knowledge said, adding Ateeqi’s dismissal “was patently to settle scores and eliminate rivals”. Quinn Emanuel declined to comment.

But that verdict was not enough to change opinions in Kuwait where the affair has left the KIA exposed to a rare level of public scrutiny and underlined the difficulties of modernising state institutions that can quickly become factionalised.

“The bigger picture is that we are in the mode of change and dismantling of structures built up over decades,” the fund manager said. “Important institutions, like ministries, the courts and the KIA are now undergoing change.”

Additional reporting by Stephen Morris

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