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Kuwait state fund 'to cut euro zone investments'

Dubai, May 27, 2010

Kuwait Investment Authority (KIA), the country's sovereign wealth fund, is planning to reduce investments in the euro zone on fears another crisis involving Portugal and Spain is lurking, an Arabic-language daily said.

Citing sources familiar with the matter, newspaper Al-Anba said the KIA's economic reports 'confirmed the escalation' of the crisis in Greece, which could lead to new debt problems for the two other European states.

A KIA spokesman was not immediately available for comment.

The sovereign fund's investments in Europe comprise 76 to 86 per cent of its portfolio, the paper said citing sources.

KIA's assets amount to $295 billion as of the end of 2009, the report said, citing sources.

'The authority found that reducing its investments in the euro zone could spare it from future losses on the back of a new financial crisis in some European countries,' the paper said.

KIA holds a stake in Germany's Daimler and is a majority stakeholder in telecom firm Zain.

Abu Dhabi's sovereign fund ADIA declined to comment when asked if they planned to follow suit while Qatar Investment Authority, also a sovereign wealth fund, was not reachable.

Assets of KIA are divided into 8 to 12 per cent bonds, 55 to 65 per cent stocks, 8 to 12 percent property, 3 to 7 percent alternative investments and an equivalent of cash investments, according to the report.

'The authority's asset value started going up noticeably since the start of the year, after it adopted risk mitigation mechanisms for the European and US markets,' the paper said.

KIA invested about $750 million in US asset manager BlackRock last year, and said in January it was eyeing investments in Asia and Latin America in 2010.

In December, KIA sold its $3 billion stake in Citigroup Inc for a profit of $1.1 billion.

Steffen Kern, economist at Deutsche Bank and a sovereign wealth fund expert, said he viewed any substantial currency restructurings by sovereign funds on the basis of recent economic events in Europe as premature.

'I don't think the developments we have seen in recent months alone justify major portfolio adjustments,' Kern said.

'Most sovereign wealth funds have a time frame of well beyond 10 years in their portfolio investments. Based on that, the current economic developments do not warrant a significant shift,' he added.

Kern said portfolio diversification, particularly currency diversification, has been a major priority for sovereign funds, and expected it to remain a key focus going forward.

'I expect that they will take a prudent approach,' he said, adding that despite the seriousness of fiscal problems in some euro zone countries, he expected the European Union and its member states to manage and see growth prospects back on track in the medium- to long-term. – Reuters

Tags: Dubai | Spain | Euro zone | Portugal | Kuwait fund | Investment Authority |

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