SOFAZ to increase profitability through long-term investments
By Fatma Babayeva
Azerbaijan’s state oil fund SOFAZ, which is in charge of accumulating and managing the country's oil and gas revenues, plans to increase the profitability of asset management in the coming years.
Ziya Kangarli, chief investment advisor at SOFAZ announced about this while addressing the Forum on “Decrease in oil prices and economic reforms: Challenges and Opportunities” held at Khazar University on May 24.
Kangarli noted that SOFAZ plans to achieve this goal by increasing the share of long-term instruments in its investment portfolio.
The Fund plans to change its investment policy eventually in such a way that will increase stable incomes from assets, said Kangarli, adding that today, up to five percent of the Fund's portfolio may be invested in gold, up to 10 percent in real estate, up to 15 percent in assets and up to 70 percent in bonds.
However, this [the portfolio] is not the ideal that the Fund strives for, the chief investment advisor said.
He further stressed the fact that the assets generate more profits than bonds. Nevertheless, in the long-term period, they are more risky instruments, and their share in the overall portfolio should be expanded.
In 2015, SOFAZ earned almost $0.5 billion from foreign investment, according to Kangarli.
The Fund would like to increase the profitability twice or thrice by attaching more importance to the investments in equities and venture capital funds, he said.
The Fund’s profitability from asset management amounted to 1.24 percent in 2015, which is not very high indicator. Earlier, the Fund invested in less risky assets with low profitability. If SOFAZ amends the investment portfolio in a way that more than 50 percent is composed of long-term instruments, and then a breakthrough will be achieved regarding the given issue, added Kangarli.
The advisor also emphasized that increasing the share of real estate in the fund's portfolio is not a random decision either, as it is one of the most popular and profitable assets, particularly in developed countries. The economic indicators show that SOFAZ is on the right path.
SOFAZ was established in 1999, and its assets amounted to $271 million at that time.
As of April 1, 2016, the assets of the Fund increased by 2 percent compared to early 2016 ($33.57 billion) to $34.25 billion.
In January-March 2016, 71.47 percent of SOFAZ investment portfolio was invested in financial instruments for up to five years. At the same time, 35.64 percent of the Fund’s investment portfolio was placed for a period up to one year, 21.56 percent from one to three years, 14.27 percent from three to five years and 9.13 per cent for more than five years.
Meanwhile, 19.4 per cent of funds were invested in real estate, stocks and gold. Currently, 3.1 percent of the investment portfolio of the Fund is invested the gold, 4.6 percent in real estate, 7.7 percent in assets and 2.5 percent in the project.
In accordance with SOFAZ's regulations, its funds may be used for the construction and reconstruction of strategically important infrastructure facilities, as well as, solving important national problems of Azerbaijan.
So far, SOFAZ has funded many strategic projects for Azerbaijan including the construction of the Baku-Tbilisi-Ceyhan pipeline, the Baku-Tbilisi-Kars railway, the Southern Gas Corridor, the Oil and Gas processing and Petrochemical Complex, as well as, the Samur-Absheron irrigation system, the Oguz-Gabala water pipeline and the State Program on education of Azerbaijani youth abroad.
The geography of SOFAZ asset allocation is as follows: 60.46 percent in European countries, 20 percent in North America, 3.62 percent in Australia, 11.80 percent in the Asia-Pacific region, 0.63 percent in the Middle East, 0.27 percent in South America, 3.21 percent in international financial institutions and 0.01 percent in Africa.
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Fatma Babayeva is AzerNews’ staff journalist, follow her on Twitter: @Fatma_Babayeva
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