Real estate: A curious case for Qatar
The QIA has found itself on both sides of a property spat. But when in-fighting turns into a court case, only the lawyers will end up winning.
A curious case is heading for the London High Court. It doesn’t sound so strange on the face of it: Chelsfield Advisers, a London-based property developer, is suing Qatari Diar, its partner, in an agreement to develop the former US embassy building in London’s Grosvenor Square.
Spats like this happen routinely in property development. But what’s odd about this one is that both sides in the case are linked to the Qatari sovereign wealth fund, the Qatar Investment Authority.
Qatari Diar is a property development subsidiary of the QIA. On the other side, Chelsfield Partners, within the same family as Chelsfield Advisers, is 25%-owned by Qatar Holding, another subsidiary of the QIA.
How can this be? Strictly speaking, since Qatar Holding isn’t a majority shareholder in Chelsfield, and since its stake is in a different part of the Chelsfield business, Qatar presumably can’t tell it not to sue. But one would think it could at least wield some influence. It perhaps doesn’t help that some of Qatari Diar’s key London staff, including UK chief executive John Wallace, have left the company.
As the reach of sovereign wealth funds extends, this sort of thing is perhaps inevitable. And it also raises the question of just how active sovereign funds should be within their own investments. The classic model is to invest in a company the fund admires, and to leave it to do its own thing while it builds up a steady and stable long-term return. But when two businesses whose profits feed into the same overall enterprise are in a costly dispute in which the only real winners are likely to be external lawyers, shouldn’t that owner be stepping in to sort things out to everybody’s benefit, without recourse to the courts?
Perhaps the question we should be asking is, just how involved the QIA is within its big investments once it has bought them. It is known for trophy purchases and developments, particularly in London – Harrods, Chelsea Barracks, The Shard – but not always for its attention to them afterwards. It is said that, in the early days at least, Qataris were very rarely involved in setting Harrods’ direction after its 2010 purchase.
So what should a sovereign fund do? Keep its ever-expanding clutch of investments all in a line, facing forwards and marching to a rhythm dictated by the owner? Or make a decision to buy and then leave them alone, even if they end up suing one another? These are the challenges that arise when one puts hundreds of billions of dollars to work worldwide, and they will surely arise again.