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Qatar revamps investment strategy after Kushner building bailout

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LONDON/NEW YORK/DUBAI (Reuters) – When news emerged that Qatar may have unwittingly helped bail out a New York skyscraper owned by the family of Jared Kushner, Donald Trump’s son-in-law, eyebrows were raised in Doha.

FILE PHOTO: U.S. President Donald Trump, flanked by White House senior advisor Jared Kushner, meets with Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman at the Ritz Carlton Hotel in Riyadh, Saudi Arabia May 20, 2017. REUTERS/Jonathan Ernst

Kushner, a senior White House adviser, was a close ally of Saudi Crown Prince Mohammed bin Salman – a key architect of a regional boycott against Qatar, which Riyadh accuses of sponsoring terrorism. Doha denies the charge.

Brookfield, a global property investor in which the Qatari government has placed investments, struck a deal last year that rescued the Kushner Companies’ 666 Fifth Avenue tower in Manhattan from financial straits.

The bailout, in which Doha played no part and first learned about in the media, has prompted a rethink of how the gas-rich kingdom invests money abroad via its giant sovereign wealth fund, two sources with knowledge of the matter told Reuters.

The country has decided that the Qatar Investment Authority (QIA) will aim to avoid putting money in funds or other investment vehicles it does not have full control over, according to the sources, who are familiar with the QIA’s strategy.

“Qatar started looking into how its name got involved into the deal and found out it was because of a fund it co-owned,” said one of the sources. “So QIA ultimately triggered a strategy revamp.”

The QIA declined to comment.

Canada’s Brookfield Asset Management Inc bailed out 666 Fifth Avenue via its real estate unit Brookfield Property Partners, in which the QIA acquired a 9 percent stake five years ago. Both parent and unit declined to comment.

The QIA’s strategic shift was made late last year, according to the sources. It offers a rare insight into the thinking of one of the world’s most secretive sovereign wealth funds.

The revamp could have significant implications for the global investment scene because the QIA is one of the world’s largest state investors, with more than $320 billion under management.

The wealth fund has poured money into the West over the past decade, including rescuing British and Swiss banks during the 2008 financial crisis and investing in landmarks like New York’s Plaza Hotel and the Savoy Hotel and Harrods store in London.

QATARI BOYCOTT

Kushner was chief executive of Kushner Companies when it acquired 666 Fifth Avenue in 2007 for $1.8 billion, a record at the time for a Manhattan office building. It has been a drag on his family’s real estate company ever since.

The debt-laden skyscraper was bailed out by Brookfield last August, when it took a 99-year lease on the property, paying the rent for 99 years upfront. Financial terms were not disclosed.

The QIA bought a 9 percent stake in Brookfield Property Partners, which is known as BPY and is listed in Toronto and New York, for $1.8 billion in 2014.

BPY has about $87 billion in assets, part of more than $330 billion managed by its parent Brookfield. The stake purchase by QIA was in line with its strategy to boost investments in prime U.S. property. The investment gave QIA no seat on the board of BPY.

The Qatari wealth fund was not involved in the 666 Fifth Avenue deal, a source close to Brookfield Asset Management told Reuters. There was no requirement for Brookfield to inform the QIA beforehand.

The rescue rankled with Doha, according to the two sources familiar with the QIA’s strategy, because Kushner – married to U.S. President Trump’s daughter Ivanka – had long been one of the key supporters in Washington of the Saudi crown prince, who is the king’s favorite son and heir to the throne.

Prince Mohammed was a prime mover in leading regional states to severing links with its neighbor Qatar and embargoing the small nation since mid-2017. Saudi Arabia, the United Arab Emirates, Egypt and Bahrain accuse Qatar of sponsoring terrorism. Doha denies the allegation and says the other countries simply want to strip it of its sovereignty.

“There is no upside in investing through funds for someone like QIA. Qatar wants full visibility into where its money goes,” said the second source familiar with the QIA’s strategy.

The QIA will not wind down existing investments with Brookfield or others, but will rather no longer invest in similar deals, according to the two sources.

The source close to Brookfield said relations with QIA were still strong.

STILL GOING BIG

The QIA’s strategic revamp also followed a reshuffle at the top of the fund last November when its long-serving chief, Sheikh Abdullah bin Mohamed bin Saud al-Thani, was replaced by its former head of risk management, Mansour Ibrahim al-Mahmoud. Foreign Minister Sheikh Mohammed bin Abdulrahman Al Thani was named QIA chairman.

Qatar, whose wealth comes from the world’s largest exports of liquefied gas, does not provide data on how much money it places with external fund managers.

“What we have seen lately is that it has have not been placing much,” said a Western fund manager who regularly sources money from wealth funds. “Either they are investing themselves or they are just sitting on a lot of cash.”

The Qatar shift in its approach reflects a wider trend among sovereign wealth funds to reduce reliance on external investment managers, in an attempt to keep tighter control over their money.

The Abu Dhabi Investment Authority, for example, said last year that 55 percent of its assets were managed by external managers in 2017, down from 60 percent the year before.

Yet, even if the QIA is being more cautious in its choice of investment vehicles, there is little indication that its appetite for big international acquisitions has diminished.

In December, new QIA chief Mahmoud told Reuters the fund was focusing on “classic” investments in the West such as real estate and financial institutions, and would also accelerate investment in technology and healthcare.

“The instructions from the top are to go out and do big deals,” said a Western banker who has held talks with Qatari officials.

He said QIA’s dealmaking had not stopped even during the height of the Gulf embargo, which initially forced the fund to put in about half of the $43 billion injected by public-sector firms into Qatari banks to mitigate the impact of outflows.

FILE PHOTO: A building at 666 Fifth Avenue, owned by Kushner Companies, rises above the street in New York, U.S., March 30, 2017. REUTERS/Lucas Jackson

With oil and gas prices growing over the past two years, Qatar has not departed from what it is best known for – snapping up big-names properties.

In 2017, QIA pledged to ramp up its investments in Britain to 35 billion pounds ($45 billion) from 30 billion. Since then, it has spent about 1.7 billion pounds on real estate and another 1.1 billion on infrastructure in the country.

In recent months, Qatar has bought New York’s Plaza and London’s Grosvenor House hotels.

Additional reporting by Eric Knecht; Writing by Dmitry Zhdannikov; Editing by Pravin Char



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Oil prices dip as U.S. crude output hits record 12 million barrels per day

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SINGAPORE (Reuters) – Oil prices fell on Friday after the United States reported its crude output hit a record 12 million barrels per day (bpd), undermining efforts by Middle East dominated producer club OPEC to withhold supply and tighten global markets.

FILE PHOTO: A Canadian Natural Resources pump jack pumps oil out of the ground near Dorothy, Alberta, Canada, June 30, 2009. REUTERS/Todd Korol/File Photo

U.S. West Texas Intermediate (WTI) crude oil futures were at $56.85 per barrel at 0010 GMT, down 11 cents, or 0.2 percent, from their last settlement.

International Brent crude futures had yet to trade.

U.S. crude oil production reached 12 million barrels per day (bpd) for the first time last week, the Energy Information Administration (EIA) said on Thursday in a weekly report.

(GRAPHIC: U.S. oil production & storage levels – tmsnrt.rs/2Vanxza)

That means U.S. crude output has soared by almost 2.5 million bpd since the start of 2018, and by a whopping 5 million bpd since 2013. America is the only country to reach 12 million bpd of production.

As output surges, U.S. oil stocks are also rising.

U.S. commercial crude oil inventories rose by 3.7 million barrels in the week ending Feb. 15, to 454.5 million barrels, the EIA said.

Analysts say U.S. oil firms will export more oil to sell off surplus stocks.

“The continued surge in U.S. production stands as a bearish dynamic for market prices, especially as increasing volumes get sold abroad in a direct challenge to Saudi Arabia and Russia,” said John Kilduff, partner at Again Capital in New York.

For now, at least, the price dips have halted a rally that pushed crude to 2019 highs this week amid supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC).

OPEC and some non-affiliated producers such as Russia agreed late last year to cut output by 1.2 million bpd to prevent a large supply overhang from growing.

Another price driver has been U.S. sanctions against oil exporters Iran and Venezuela.

Reporting by Henning Gloystein; Editing by Joseph Radford



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Asian shares tread water as investors watch trade talks

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SHANGHAI (Reuters) – Shares in Asia were flat in early trade on Friday following a fall on Wall Street, with a deteriorating global economic outlook outweighing more signs of progress in trade talks between China and the United States.

Market prices are reflected in a glass window at the Tokyo Stock Exchange (TSE) in Tokyo, Japan, February 6, 2018. REUTERS/Toru Hanai/File Photo

Early in the Asian trading day, MSCI’s broadest index of Asia-Pacific shares outside Japan was up less than 0.1 percent.

(Graphic: Asian stock markets: tmsnrt.rs/2zpUAr4)

Australian shares gained 0.5 percent and Japan’s Nikkei stock index was 0.3 percent lower.

Investors continue to closely watch high-level talks between U.S. and Chinese trade negotiators in Washington, with little more than a week left before a U.S.-imposed deadline for an agreement expires, triggering higher tariffs.

Reuters reported exclusively on Wednesday that the two sides were drafting language for six memorandums of understanding on proposed Chinese reforms, progress that had helped to lift investor sentiment.

But shares on Wall Street slumped Thursday, pulled down by new data showing weakness in U.S. business spending plans and factory activity.

The Dow Jones Industrial Average fell 0.4 percent to 25,850.63 points, the S&P 500 lost 0.37 percent to 2,774.28 and the Nasdaq Composite – which had climbed the previous eight sessions – dropped 0.4 percent to 7,459.06.

The U.S. Commerce Department said on Thursday that domestic orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.7 percent.

Moreover, the U.S. Mid-Atlantic factory sector fell into contraction territory in February for the first time since May 2016, data from the Philadelphia Federal Reserve showed.

“While global manufacturing is weak, services activity is looking more positive. But it is difficult to see manufacturing and services diverging for long,” analysts at ANZ said in a morning note.

“There are strong multiplier effects from manufacturing that imply downside risks to the services sector, particularly in Europe. And trade uncertainty, which is overhanging the manufacturing sector, needs to be resolved.”

The yield on benchmark 10-year Treasury notes edged lower to 2.686 percent Friday, compared with a U.S. close of 2.688 percent on Thursday as a bump from investor optimism about trade talks progress ebbed.

The two-year yield, watched as a gauge of expectations of higher Fed fund rates, eased to 2.5266 percent from a U.S. close of 2.529 percent.

The Australian dollar rebounded after tumbling Thursday on a Reuters report that China’s northern port of Dalian has placed an indefinite ban on imports of Australian coal. It was last up 0.3 percent at $0.7107.

The U.S. dollar was barely changed against the yen at 110.66, while the euro inched slightly higher to buy $1.1340.

The dollar index, which tracks the greenback against a basket of six major rivals, was steady at 96.586

U.S. crude dipped 0.25 percent at $56.82 a barrel.

Gold rebounded after falling more than 1 percent Thursday, with spot gold trading up about 0.1 percent at $1,324.92 per ounce. [GOL/]

Reporting by Andrew Galbraith; Additional reporting by Richard Leong in NEW YORK; Editing by Richard Borsuk



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QuadrigaCX’s inadvertent transfer due to ‘platform setting error’

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The court-appointed monitor overseeing the search for the roughly $260 million owed to clients of the embattled QuadrigaCX cryptocurrency exchange says the bitcoin transfer it “inadvertently” made this month was due to a “platform setting error” that prompted the automatic transaction.

Ernst & Young also said in its second report that it has confirmed that the insolvent company’s cold-storage wallets continue to hold approximately 104 bitcoins. It had said that 103 bitcoins had been transferred out on Feb. 6.

The report adds that the Vancouver-based company on Feb. 14 transferred bitcoin, litecoin and other cryptocurrencies over to cold-storage, or offline, wallets controlled by the court-appointed monitor.

The monitor says QuadrigaCX transferred roughly 51.1 bitcoins, 33.3 bitcoin cash, 2,032.7 in bitcoin gold, 822.3 litecoin and 951.5 ether, which will be held pending further order of the court.

The report also says that the cryptocurrency exchange, which was granted creditor protection and appointed a monitor earlier this month, has “no accessible funds” to fund its creditor protection proceedings and pay creditors other than interim financing “which will be exhausted in the near term.”

Ernst & Young says there are three immediate sources of funds available, such as bank drafts and money held by third-party processors, and the company and the monitor are taking steps to facilitate access.

This week, a Nova Scotia Supreme Court judge appointed Toronto law firm Miller Thomson along with the Halifax firm Cox & Palmer as representative counsel for 115,000 clients owed money.



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