State Oil Fund of Azerbaijan knows how to increase oil revenues

Photo: State Oil Fund of Azerbaijan knows how to increase oil revenues / Analysis

Azerbaijan, Baku, July 24 /Trend/

Ellada Khankishiyeva, Trend Analytical Centre Head

In less than 12 years of activity the State Oil Fund of Azerbaijan (SOFAZ) increased the volume of assets by more than 120 times. The increase in revenue of SOFAZ was not only due to receipt of large incomes from the sale of oil at high international prices, especially as the fund spend them each year, but also by proper and competent management.

If the Oil Fund accumulated only $271 million in 2001, then its assets reached $32.666 million on July 1, 2012.

It should be noted that SOFAZ achieved these results by implementing a conservative investment policy, which was due to the fact that the platform for the management of funds was formed during this period. In addition, this strategy has paid off during the global financial crisis.

However, the fund has started to invest in more sophisticated financial instruments from this year, which will bring more revenue to the country in the future. In particular, three new tools added to a set of SOFAZ investment tools, providing investing in stocks, real estate and gold.

Almost from its inception, the fund invests most of his savings in bonds, which share in the investment portfolio amounted to more than 90 percent of SOFAZ. Moreover, the major part of them is corporate securities that do not concede to government bonds of the leading countries of the world by the degree of reliability. In addition 7.08 percent of the investment portfolio invested in deposits and money market instruments during the first half of the year, 1.05 per cent - in gold, 0.12 percent - in shares (share transactions, rather, have the assessment and market research nature).

SOFAZ investment portfolio should look like this at the end of the year in accordance with the investment policy of the fund for 2012: 85 percent - money market instruments and debt market, five percent - shares, five per cent - real estate, five percent - gold. SOFAZ is already considering real estate objects in several European countries and South-East Asia for investment, a major investment in shares, which is scheduled for September this year and purchase of an additional 7.5 tons of gold.

SOFAZ's investment activity has been clearly described by the rules and has several limitations. Thus, the current account for SOFAZ's foreign exchange transactions within the country can be opened only at the Central Bank and in the banks outside the country, having long-term ratings not lower than "AA" Standard & Poor's, "Aa3" Moody's Investor Service and "AA" Fitch.

As of June 30, 34.43 per cent of the SOFAZ investment portfolio was placed in securities with the rating 'AAA', 12.5 per cent - 'AA', 31.54 per cent - 'A', 20.17 per cent - 'BBB' and 1 36 per cent - in other securities.

The financial bodies having high investment ratings on long-term liabilities may become SOFAZ's partners in global financial markets. The maximum weight of one financial body or one investment asset in SOFAZ's portfolio must hit 15 per cent of the total volume of SOFAZ's investment portfolio. SOFAZ's some funds may be given for the management of foreign managers. The volume of investment portfolio, which is delivered for the management of foreign managers must not exceed 60 percent of the total investment portfolio. The maximum amount of the investment portfolio, which is delivered for the management of one foreign manager must not exceed five percent of SOFAZ's total investment portfolio.

Currently, besides the World Bank Treasury, SOFAZ's managers are Clarident (Credit Suisse's division) and Deutschebank Asset Management banks.

Around 292.1 million manat were obtained from managing SOFAZ's funds in January-June.

About 98.42 percent of the investment portfolio fall to the funds placed for a period of five years.

Around 62.02 percent of the investment portfolio are placed in European countries.

It is clearly defined that SOFAZ's investment portfolio must not be filled by the funds from speculative transactions. At present, SOFAZ also considers placing the fund's assets in local banks as risky.

Implementing the investment activity is a prerequisite for SOFAZ's activity. Placing SOFAZ's main assets outside the country in foreign financial assets, securities, real estate, transferring the funds for the management of foreign managers and buying gold neutralize the negative impact of currency on the domestic market. As a result, the pressure on the exchange rate of manat is kept. If one considers frequent increase in the currency supply, coming into the country by selling export oil, the level of SOFAZ's impact on the stability of the macroeconomic situation is significant.

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Tags: oil