SOFAZ names reasons for lowered investment portfolio management profits

Oil&Gas Materials 22 July 2011 15:50 (UTC +04:00)

Azerbaijan, Baku, July 22 / Trend E.Ismayilov /

By decreasing interest rates to the lowest level in the world, financial markets over the past decade have negatively impacted the investment portfolio profitability of the State Oil Fund of Azerbaijan Republic (SOFAZ). SOFAZ investment portfolio mainly consists of the securities with stable income.

"The decline is mainly linked with the fact that following the global financial crisis, the central banks of many leading countries initiated measures to stimulate economic growth by lowering interest rates," SOFAZ reported.

Particularly, the target interest rate of the U.S. Federal Reserve and the Bank of England are 0.25 and 0.5 percent, respectively. Discount rate of the European Central Bank has only recently been increased to 1.5 percent.

"But even this rate is considerably low compared with the historical average interest rate," SOFAZ said.

Given the fact that SOFAZ is a long-term investor, the fund is preparing a new investment policy, which provides an even more diversified investment portfolio, with a view to increase the

The new policy provides for an increase in the proportion of riskier assets in the SOFAZ portfolio, for example shares.

The fund reported that more income was received in the first half of 2011 on the portfolio management in the European currency compared to other currencies. "This is due to the fact that interest rates in the euro against other currencies (the dollar and pound / sterling) are relatively high," the fund noted.

SOFAZ was established in 1999; its assets amounted to $271 million.

Based on SOFAZ's regulations, the funds may be used for the construction and reconstruction of strategically important infrastructure facilities, as well as solving important national problems. In 2001-2009 special attention was drawn to the development of the oil and infrastructure sectors, as well as the non-oil sector of the country. At the moment, a number of important projects in
irrigation and transportation are financed at the expense of the funds.

The main purposes of the fund are: accumulation of funds and placement of the fund's assets abroad to minimize the negative impact on the economy, preventing a "Dutch syndrome" to ensure savings for future generations and to maintain the current socio-economic standard in the

SOFAZ's assets increased by $7.6 billion up to $30.4 billion during the first half of 2011.

SOFAZ assets amounted to $22.8 billion as of Jan.1, 2011.