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Executive director: No great impact on SOFAZ's investment portfolio due to COVID-19 (INTERVIEW)

Oil&Gas Materials 22 July 2020 11:17
Executive director: No great impact on SOFAZ's investment portfolio due to COVID-19 (INTERVIEW)

BAKU, Azerbaijan, July 22

By Nargiz Ismayilova - Trend:

The changes that have occurred in the global economy under the influence of the COVID-19 pandemic, as opposed to many other institutional investors, did not greatly affect the profitability and sustainability of the investment portfolio of the State Oil Fund of Azerbaijan (SOFAZ), Executive Director of SOFAZ Israfil Mammadov told Trend.

"Of course, the current situation is always strictly analyzed," Mammadov added. "If the foundation is laid for the revision of the current strategy, then appropriate changes will take place. In this regard, the public will be timely informed."

"SOFAZ’s asset management strategy is calculated for the medium and long term, taking into account its obligations to the present and future generations," the executive director added.

Along with this,monitoring the world economy, global financial markets, future prospects, at certain time intervals, appropriate changes are made to this strategy, which is reflected in the SOFAZ’s investment policy, he noted.

Taking into account these factors, SOFAZ has chosen a rather conservative strategy in terms of the risk/return profile, noted Mammadov.

Given the current market situation in 2020, the SOFAZ has not made any new investments in listed shares as in 2019, he added.

“SOFAZ has an investment strategy developed in accordance with the Investment Policy and Rules for various assets, and the corresponding investments are made within this framework. This year, it is expected that the share of bonds with a lower market risk in the sub-portfolio of fixed income securities will increase, and since the beginning of the year, appropriate investments have been made in this direction,” the executive director added.

As for mutual funds investing in shares (private shares), a comprehensive analysis of the state of the market was carried out within the investment strategy envisaged in the first half of the year and investments were made in the corresponding fund, added Mammadov.

“For the sub-portfolio of real estate, a temporary position of expectation regarding new investments during the year was also selected. Currently, SOFAZ is closely following the processes taking place in the world economy and global financial markets, and new investment opportunities for the aforementioned financial assets can be considered only after observing the relevant market conditions,” he said.

Mammadov noted that SOFAZ’s assets by the end of the first quarter of 2020 amounted to $41.3 billion, and by the end of June, these figures increased by $1.8 billion and amounted to $43.2 billion.

"In the SOFAZ’s investment policy for 2020, the share of the euro in the currency basket decreased from 35 percent to 20 percent, while the weight of the US dollar increased from 50 percent to 65 percent. The main reason for this is that long-term low or negative interest rates in the euro market, especially in a fixed income portfolio, can create additional threats, and that the weight of assets denominated in euros in the currency distribution of the investment portfolio SOFAZ is higher than in the corresponding authoritative indices in the international financial markets, in international currency reserves," he said.

SOFAZ, by investing in various financial assets and sectors, provides diversification of the investment portfolio, which, in turn, helps to mitigate the overall risks of foreign exchange funds, added the executive director.

“We would like to inform that increasing profitability while minimizing possible risks is the basis of SOFAZ's investment strategy, which constantly carries out appropriate work to improve the risk/return profile of the investment portfolio. For example, this year, we see a significant increase in the weight of higher credit-rated bonds in the fixed income sub-portfolio, accompanied by less risk of price volatility. At the same time, investments in other financial assets are made taking into account the existing market conditions,” Mammadov added.

"In 2020, SOFAZ will finance two social projects - measures related to social and housing issues of internally displaced persons (IDPs), and the State Program on Increasing the International Competitiveness of the Higher Education System in Azerbaijan for 2019-2023, as well as transfers to the state budget. So, from January through June 2020, SOFAZ’s budget expenditures amounted to 5.8 billion manat ($3.4 billion), including expenses related to transferring to the state budget, amounted to 5.6 billion manat ($3.2 billion)," said Mammadov.

At the same time, the Fund will provide activities related to social, domestic and settlement issues of internally displaced persons, and financing of the ‘State program to increase the international competitiveness of the higher education system in Azerbaijan for 2019-2023’. Funding for any other social projects within the budget of the fund is not envisaged.

Mammadov said that the SOFAZ plans to increase the share of high-quality bonds this year in the portfolio of fixed income securities, which are characterized by a lower risk of price volatility.

To this end, a process of replacing corporate bonds with bonds of the state and government agencies with high credit ratings on the most favorable terms of purchase and sale is in progress, he added.

(1 USD = 1.7 manat on July 22)

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