Kuwait: Need to rationalize spending, stop financial waste

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KUWAIT CITY: No one disputes the number of changes that have occurred since the establishment of the Kuwait Investment Office in London in the early 1950s given all aspects of life, including the development of modern methods of investment and the huge technological development that accompanied investment systems, so today it is possible for investors to manage huge portfolios and various investment strategies in various investment assets through a small handheld device, and have access to all the details of their investments with one touch of a button, reports Al- Qabas daily.

In this respect, former Director of the Global Equities Department at the Kuwait Investment Authority Uday Ibrahim said within the draft government action program, which includes a number of steps to ensure the financial sustainability of the state, there is talk of the need to rationalize spending and stop financial waste.

In this context, he said, it is necessary to shed light on the idea of continuing to maintain the Kuwaiti Investment Office in London, but is there still any investment feasibility in continuing to bear the financial cost of this investment body? Are the justifications on the basis of which the decision to establish this office nearly seventy years ago still exist today? The reasons that justified the physical presence in the British financial market at that time are no longer justified or even investment feasible in our current era. We think the following reasons may indicate the lack of investment feasibility that is supposed to justify the high financial cost of this existence.

First, the nature of the investment office’s activity: The office’s investments are mostly concentrated in portfolios of international stocks and bonds. If this is the case, what are the motives and logical reasons justifying the existence of a large building in one of the most expensive financial districts in the world? Those portfolios of stocks and bonds can be managed from the main center in Kuwait through external portfolio managers, as is the case in managing the Authority’s investments for the global stocks and bonds sectors today. The cost of the managers and employees of the investment office is not limited to the costs of the salary item only, but also includes other costs such as health insurance, end-of-service amounts, and many other indirect expenses.

This means that Kuwait bears, without any investment justification, all the living costs of the managers and employees of the investment office, the vast majority of whom are foreign employees, in exchange for the possibility of managing these portfolios with low management fees provided by the size of those large portfolios, and the accompanying negotiating advantage in obtaining low management fees. Here, it is possible to compare the annual budget of the investment office with the fees of external portfolio managers to verify the validity of this fact.

Second, improving the performance of investment portfolios, as through the use of external portfolio managers, the KIA will be able to choose between a large number of portfolio managers in different geographical regions instead of limiting its management to a limited number of managers appointed within the office, as some legal issues have been highlighted that was raised recently between the office and some of its former directors is a sad example of poor choice.

Third, the events and the problems of legal cases between the office and some foreign employees have demonstrated the difficulty of harmonizing between British labor laws and the fact that the investment office is only an investment arm of the KIA, and thus it is subject to Kuwaiti laws and regulations, such as the Public Funds Protection Law, and is also subject to the control of the Audit Bureau accounting in Kuwait in all its activities, not to mention the exorbitant costs incurred by public funds in the face of these legal cases.

Fourth, transferring investment portfolios to the main headquarters in Kuwait will save a lot of the exhausted efforts of the executive management of the authority and its board of directors in finding solutions to the chronic problems of the office, in addition to sparing the state’s investments and its financial reputation for those harmful headlines that we witness from time to time.

All of these reasons that were briefly mentioned can be verified by conducting a careful and transparent study to find out whether today there is justification for bearing the burdens and costs of this external investment apparatus, provided that this study shows the percentage of the returns achieved, including the deduction of all investment expenses in line with international practices in measuring the performance rates of investment portfolios, which is usually done after deducting management fees, as it would be absurd to take the performance numbers of investment office portfolio managers without looking at all the costs associated with all office employees.