Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Qatar is using its vast sovereign wealth fund to lure venture capital firms to Doha, making it the latest hydrocarbon-rich Gulf state to coax financiers into setting up outposts in its nation in return for funding.
Over the past year, the Qatar Investment Authority (QIA) has deployed “close to half” of a $1bn fund of funds designed to bring more venture capital to the nation’s nascent start-up scene, its head of funds told the Financial Times.
The QIA, whose assets are estimated at $500bn, is best known for bagging stakes in international trophy assets, from Harrods to Heathrow airport.
But the initiative in its own backyard comes as Gulf monarchies look to leverage the petrodollars they invest with outside managers, expecting those firms to help them diversify their economies, train their workers and lessen their reliance on fossil fuel revenues.
The QIA will still invest most of its wealth with companies and funds outside Qatar, but wants to make Doha a regional hub for VC.
“There is a different level of engagement when [the partners] are prepared to invest into the country and help diversify your own economy,” said the QIA’s head of funds Mohsin Pirzada.
Saudi Arabia, which has the region’s biggest economy but most acute needs for domestic investment, has used the clout of its Public Investment Fund to get more money managers to invest in the kingdom, notably asset management giant BlackRock, which launched an investment firm in Riyadh with $5bn from the PIF.
Regional rival Abu Dhabi has billed itself as the “capital of capital” and sought to use its enormous investment vehicles, including the world’s third-largest sovereign wealth fund Adia, to entice asset managers, hedge funds and billionaire family offices. Hedge fund Brevan Howard and $1.3tn US asset manager PGIM are among those that have opened offices in Abu Dhabi.
The QIA last year struck a deal with emerging markets investor Ashmore, which started a $200mn Qatar equity fund with QIA as anchor investor and incorporated in Qatar’s financial centre this month.
Meanwhile, the QIA’s fund of funds has backed six VC firms, including San Francisco-headquartered Builders VC and B Capital, whose co-chief executive and co-founder is Facebook co-founder Eduardo Saverin. Two of the firms had opened Doha offices and the other four were in the process of doing so, the QIA said.
Beyond VCs, the QIA is hoping that private companies, held by private equity firms in which the sovereign wealth fund invests, will come to Doha.
“We can also invite portfolio companies that are held within our fund managers, be it a Blackstone, KKR, [or] Carlyle,” Pirzada said. “If these underlying companies want to expand into the Middle East, then we would roll out the red carpet and say, consider Doha as a choice.”
Gas-rich Qatar, home to just 3mn people and one of the world’s richest countries per capita, captured international attention in 2022 when it hosted the men’s football World Cup. But despite efforts to diversify its economy with tourism and real estate, Doha has struggled to capitalise on the tournament’s success.
Pirzada said the QIA’s VC fund of funds idea came out of a two-year study, directed by the prime minister’s office, “on what can Qatar do to help position itself in this region” as well as support entrepreneurs.
The requirement for a recipient VC firm would be “to contribute to the local ecosystem”, Pirzada said, which could be anything from setting up a Doha office to starting a dedicated local fund or establishing training academies and incubators for entrepreneurs.
Pirzada said Qatar’s ambitions to become the region’s VC hub complemented the strategies of other Gulf states. “It plugs in nicely with what our regional peers are doing,” Pirzada said, describing the intra-Gulf competition to attract fund managers as “healthy”.
While it does not stipulate how much the VC firms must invest locally, the QIA is wary of backing those without genuine commitment to Doha: Pirzada said he rejected a manager who was planning to commute between Doha and Texas every week. Their interest “was just really to tap into the capital”, said Pirzada. Of 120 applications that the QIA had vetted, he added, only 14 had reached the final stage of discussions.
Asset managers are eyeing up the QIA as Doha prepares to increase its energy production by almost 85 per cent by the end of the decade. However, Pirzada said, the QIA had “zero visibility on when those inflows will hit the coffers”.
After a sluggish period for mergers and acquisitions, Pirzada said US President Donald Trump had acted as a “catalyst” for dealmaking. “We do think M&A markets are now reopening and so it should be an opportune time for deal flow,” he added.
Read the full article here
