Oman Shuns Hedge Funds as Sovereign Investor Targets Stocks

Oman, the largest oil producer in the Arabian Peninsula that’s not a member of OPEC, said it’s shunning hedge funds and alternative assets to invest directly in emerging market equities and real estate in stable countries.

Oman Investment Fund, the sovereign wealth fund, manages almost all its assets internally and would only consider external managers because it could be “resource-intensive” to follow hundreds of stocks on a daily basis, Chief Executive Officer Hassan Al Nabhani said in an e-mailed response to questions, his first such interview in at least seven years.

“The bulk of our portfolio comprises direct private equities investments,” Al Nabhani said. “Hedge funds are not transparent enough in their strategies and the risk they take do not compensate for the returns and the fees they charge.”

Sovereign funds in the six-nation Gulf Cooperation Council, such as the Abu Dhabi Investment Authority, are seeking greater control over their investments and curbing their reliance on outside fund managers. ADIA is building up in-house teams in areas such as real estate and private equity to make direct investments, according to its annual report published in May.

Oman, the second-smallest economy in the Persian Gulf, set up OIF in 2006 to preserve and grow the country’s wealth for future generations. OIF has assets valued at about $6 billion, according to the Sovereign Wealth Fund Institute.

Listed Equities

Al Nabhani said the fund holds a diversified portfolio of listed equities, mostly in emerging markets and Oman. The only alternative assets the fund invests in is a “handful” of private equity funds, he said, without disclosing any names.

The MSCI Emerging Market Index has dropped 1.3 percent this year, compared with the 20 percent gain in the gauge tracking stocks in developed countries. The Omani economy is forecast to expand at a compound annual rate of 4 percent from 2011 to 2016, according to the International Monetary Fund.

“With the uncertainties still surrounding the global economy, we have deemed that Oman in particular and our region overall offer extremely attractive investment opportunities,” he said, naming the tourism, logistics, marine resources, mining, advanced manufacturing and health care industries.

The fund in February bought a 41 percent stake valued as much as $57 million in Oman National Investment Corp. from Dubai Group LLC, one of several companies in the emirate seeking to restructure about $6 billion of loans.

Abu Dhabi’s ADIA seeks to invest between 35 percent and 50 percent of its assets in the U.S., with a further 15 percent to 25 percent targeted for emerging markets. The fund expects to have 20 percent to 35 percent of its portfolio in Europe, with the remainder invested in so-called developed Asian markets.

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