Overview of the Kuwait Investment Authority
In August 2004, KIA appointed an international consultant to review KIA’s Strategic Asset Allocation, to undertake a gap analysis and to provide an overall evaluation of KIA’s organizational structure. Among other things, the consultant recommended that KIA diversify its asset classes into uncorrelated assets. Accordingly, the consultant recommended that KIA decrease its allocations to traditional asset classes (such as public listed equities and bonds) and increase its allocation to non-traditional and uncorrelated asset classes (such as alternative investments, private equities and real estate). Through this approach, KIA would increase its investment returns while decreasing overall risk and volatility. These returns are to be reinvested so that total assets under KIA’s management will gradually increase. The consultant also recommended that KIA explore markets other than the traditional and developed economies of America, Western Europe and Japan. By entering into Emerging Markets, KIA would be able to increase its investment returns and its Assets Under Management (AUM).
In June 2005, KIA’s Board of Directors approved KIA’s Strategic Asset Allocation along with a series of recommendations made by the consultant, including establishment of a Target Rate of Return and a Risk Profile that would seek to enable KIA to double AUM within ten years. The adopted recommendations included relaxing the quality of fixed income instrument investments from AA to BBB+, purchasing High Yield and Emerging Market Debt and purchasing small and mid cap as well as Emerging Market equities. The Strategic Asset Allocation also recognized the importance of Alternative Investments, including Private Equity, Hedge Funds, Funds of Funds and Real Estate investments. The Strategic Asset Allocation reduced exposure to traditional asset classes and increased exposure to non-traditional asset classes.
In November 2005, KIA initiated Phase II of this project by reviewing its sub-asset classes and its benchmarks, and by creating a Risk and Performance Measurement Unit. In January 2006, KIA commenced Phase III of this project by reviewing its organizational structure to align it with the Strategic Asset Allocation and to incorporate industry best practices.
Within this framework, KIA’s Board of Directors on April 12, 2006 approved the creation of the following Sectors:
▪ Office of the Managing Director, which includes Training, Strategy and Planning and a newly created Department for Performance and Risk Measurement.
▪ Operations and Administration, which includes Investment Accounts, Information Technology and Administration and Financial Affairs and Human Resources.
▪ Marketable Securities, which includes the current portfolio investment departments of America, Asia and Europe and the Treasury Department.
▪ Alternative Investments, which includes Private Equity, Hedge Funds and Real Estate.
▪ General Reserves, which includes participations in all Kuwaiti and Arab funds, equities, debt, direct participations, real estate and Kuwait's participation in state owed and international institutions.
In addition to the above Sectors, the following Departments continue to report directly to the Managing Director:
▪ Kuwait Investment Office.
▪ Debt Settlement Office .
▪ Legal and Compliance Department.
This organizational structure reflects industry best practices.