SOFAZ reveals structure of its investment portfolio
By Leman Mammadova
Around 76.5 percent of Azerbaijan’s State Oil Fund (SOFAZ) was invested in fixed income financial instruments and short-term capital market instruments as of the end of 2018, the Fund told Trend.
As the Fund noted, to date SOFAZ portfolio includes financial instruments in around 20 currencies.
"Moreover, geographical diversification is also one of the key directions of SOFAZ investment strategy. Thus, at present, the investments of SOFAZ have been distributed across more than 50 countries and have been directed to 10 sectors of the world economy. As of late 2018, 76.5 percent of SOFAZ investment portfolio was invested in fixed income financial instruments and short-term capital market instruments , 12.8 percent accounted for stock, 5.3 percent and 5.4 percent was invested in real estate and gold, respectively," said SOFAZ.
The Fund further said that the main task in diversification of the investment portfolio is the distribution of financial flows in different types of investments.
"This greatly reduces potential risks and reduces the likelihood of losses from investment. The diversification of the SOFAZ investment portfolio is carried out at several levels, at which special attention is paid to such parameters as the currency composition of the portfolio, as well as the types of assets, countries, regions and sectors of the economy the Fund is investing in," said SOFAZ.
The total value of the investment portfolio of SOFAZ as of end-2019 is forecasted to stand at $ 41.5 billion.
The diversification of the SOFAZ investment portfolio in terms of currency is regulated by the Investment Policy. The currency structure of the SOFAZ investment portfolio for 2019 is as follows: 50 percent of assets can be in dollars, 35 percent in euros, 5 percent in British pounds and up to 10 percent in other currencies.
The State Oil Fund of Azerbaijan established in 1999 with the assets of $271 million aimed at efficient accumulation of resources and placement of assets abroad, as well as for the preservation and multiplication of funds received from the effective management of oil revenues in order to minimize the negative effect to the economy, prevention of "Dutch disease" to some extent, promotion of resource accumulation for future generations and support of current social and economic processes in Azerbaijan.
Based on 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.
The revenues of the State Oil Fund are formed primarily from revenues from the sale of oil, which remains at the disposal of Azerbaijan in accordance with production-sharing agreements.
Budget revenues of SOFAZ reached 17.6 billion manats ($10.36 billion) in 2018, which is a 31.1 percent increase compared to 2017.
Revenue of 17.3 billion manats ($10.18 billion) was received from implementation of oil and gas agreements, including 16.6 billion manats ($9.77 billion) from the sale of profit oil and gas, 765.2 million manats ($450.25 million) as bonus payments, 4.1 million manats ($2.41 million) as acreage fee and 18.1 million manats ($10.65 million) as transit payments.
As per SOFAZ’s 2018 budget, 10.9 billion manats ($6.41 billion) were transferred to the state budget.
The expenditures in the amount of 200 million manats ($117.7 million) were directed to financing the improvement of social-economic condition of refugees and internally displaced persons, 90 million manats ($53 million) were used for financing the reconstruction of the Samur-Absheron irrigation system.
In addition, 176.1 million manats ($103.62 million) were directed to financing Baku-Tbilisi-Kars railway construction and 7.2 million manats ($4.24 million) were directed to financing "The state program on the education of Azerbaijani youth abroad in the years 2007-2015".
It should be also noted that SOFAZ plans to make investments in various types of real estate in a number of developed countries in North America, Europe and Asia-Pacific region. Its investments priorities depend on tendencies in the world economy, which are studied before approving the Investment Policy.
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