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* Deal selection boils down to returns, not politics-sources
* Prefers exclusive talks with sellers, not auctions
* Competition from private equity and pension fundsincreasing
* In talks with UK on billions of pounds of infrastructuredeals
By Mirna Sleiman and Dinesh Nair
DUBAI, April 8 (Reuters) - Bankers and politicians toutingtheir countries' wares have to work hard to get the attention ofQatar's sovereign wealth fund, such is the range of itsinterests, from banks to cars to soccer clubs, and its exactingrequirement for returns.
With estimated assets of about $200 billion, and more than adozen potential deals on its radar every week, the state-runfirm has no time for less than compelling investmentopportunities and hopes to make more than 17 percent on its bookthis year, according to one banker close to the fund.
In a series of interviews with top bankers and officials whodeal with the fund, most of whom wished to remain anonymous dueto their business relationships, Reuters probed the thinkingbehind the gas-rich Gulf state's investments and the futuredestination of its capital.
"There's clearly an open-door policy. Qatar has no mysteryand no global mission to conquer the world. All it is is buyingstrategic shares in big companies at an advantage," says asenior banker at a global bank who has worked on several dealsfor the fund.
Qatar Holding, the investment arm of the wealth fund, hasbeen actively deploying the nation's riches from plentifulnatural gas in recent years in a string of high-profile assetsranging from French soccer club Paris Saint-Germain to stakes inGerman sports-car maker Porsche, British bankBarclays and Swiss lender Credit Suisse.
The world's top exporter of liquefied natural gas has a lotof spare cash to invest; recent figures showed a budget surplusof $26 billion in the second quarter of fiscal year 2012/13, or54 percent of GDP for the period.
"The state exports 6 million barrels a day of oil equivalent(1m oil and 5m gas). At $100 a barrel, that would give revenuesof $200 billion a year," the banker close to the fund said.
"After spending on government and budgets, the remaining $50billion are channelled to QIA for investments. Qatar InvestmentAuthority invests $40-$50 billion a year."
Executives at Qatar Holding, who said last year it had about$30 billion to spend, have said the fund follows no particularinvestment strategy and nothing is off limits.
"You name it - shares, bonds, real estate, private equity.We will look at every sector in every country around the world,"Hussain al-Abdullah, Qatar Holding's vice-chairman, told a newsconference in February.
"The Qataris have shown to be astute investors. Their focusis to identify good assets which they can acquireopportunistically regardless of geography or asset class," saidChristos Papadopoulos, chief executive for the Middle East,North Africa and Pakistan, at Standard Chartered.
"It's all about the price."
INFRASTRUCTURE, REAL ESTATE
A growing focus for the fund is infrastructure investment.
Another banking source said the fund had hired Deven Karnik,the most senior managing director of Morgan Stanley's Asiainfrastructure fund until he left in March, to head a newinfrastructure division.
Bankers say the fund, which paid 900 million pounds ($1.4billion) last year for 20 percent of BAA, which owns London'sHeathrow airport, Europe's busiest, is in talks with the UKgovernment to invest billions more in British infrastructure.
"The fund is now looking actively at assets in pipelines,ports, airports, roads. Everything infrastructure will grabtheir attention now," the source said.
QIA is also bullish on real estate, having invested billionsof dollars in high-end property in Europe, especially London,where it owns assets such as the Shard skyscraper.
It is looking at mezzanine-related deals with distressedsellers where the fund has a likelihood of taking possession ofthe property, said a London-based banker who advises the fund.
BILATERAL DEALS
Qatar prefers bilateral transactions where exclusive talkswith sellers allow them to negotiate better terms and itgenerally avoids auctions or formal processes with multiplebidders.
The fund also demands additional perks like downsideprotection contracts, which ensures their investments aresafeguarded in the event of a sharp downturn in asset prices,bankers aware of the fund's plans said.
In recent months, the fund has embarked on an investmentstrategy of picking minority stakes in large global companiessuch as oil giant Royal Dutch Shell, jewellery makerTiffany & Co and Germany's Siemens.
The strategy took an activist turn in 2012 when it demandedbetter terms from Glencore for its planned acquisitionof London miner Xstrata, in which it had built up astake of more than 12 percent, forcing the commodities giant toraise the share swap offer.
Among advisors, Credit Suisse, in which it holds thesecond-largest ownership stake of 6.2 percent, is a preferredchoice.
The fund has also increasingly used boutique advisory firmssuch as Lazard, Evercore Partners and PerellaWeinberg in the recent years on big deals.
Bankers say the fund's choice of boutique advisors ratherthan bulge-bracket investment banks shows its focus is advice,rather than financing requirements.
RETURNS
Advisers and bankers working closely with the fund say dealselection is all about the internal rate of return (IRR).
"It's 100 percent about economics and zero politics. Manydeals have been killed if they don't make financial sense, evenif they are politically beneficial. It all boils down to theIRR," a banking source close to the fund said.
In a rare media briefing in February, Al-Abdulla said theaverage return in the past four years was around 13 percent.
QIA does not disclose its targets, but a banker close to thefund said return on investments was 17 percent in 2012. "Theydon't benchmark against any index but they're hoping to achievemore this year," he said.
By comparison, the Abu Dhabi Investment Authority (ADIA),one of the world's biggest sovereign wealth funds, said in its2011 annual review that it made returns of 6.9 percent on anannualised basis over a 20-year period as of Dec. 31, 2011.
CONCERNS
An improvement in market liquidity and sentiment has meantlarge private equity firms (PE) and pension funds are posingmore competition for the kind of assets Qatar is interested in.
"We have seen them walk away from couple of situationsrecently because the sellers brought in PE firms. When marketconditions improve, the strategy of bilateral talks andnegotiating better terms always don't work as there is alwaysanother buyer," a Dubai-based banking source said.
Another potential concern is the concentration of power anddecision making with a handful of people and the absence of alarge pool of second and third level managers at the fund whohave the authority to make key decisions.
All deals are approved by the board, which includes centralbank governor Sheikh Abdulla bin Saoud Al-Thani, financeminister Yousef Kamal and is chaired by Prime Minister SheikhHamad bin Jassim Al-Thani.
Ahmad Al-Sayed, managing director and chief executiveofficer of Qatar Holding, is another key decision maker.
"If the deal hits the $5 billion mark or more then it goesto the Emir and crown prince for blessings," one source said.
Despite the concerns, the fund's appetite for deals is onlyseen increasing in the coming years as it builds out a portfoliospanning several sectors and regions.
"Qatar has been very active and will continue to be activegoing forward. They are very smart and sophisticated investorsand are very focused on what they do," said Elif Bilgi, countryhead for Turkey and co-head of emerging markets investmentbanking at Bank of America Merrill Lynch.
