1. The objective of the Investment Policy of the State Oil Fund of the Republic of Azerbaijan (hereinafter – SOFAZ)

2.1. Forecasted size of the investment portfolio of SOFAZ

• 50% invested in assets denominated in USD;
• 40% invested in assets denominated in EUR;
• 5% invested in assets denominated in GBP.

2.2.2.  5% of the Portfolio can be invested in assets denominated in the currencies indicated in Section 2.2.1 of “Rules on management of foreign currency assets of the State Oil  Fund of the  Republic  of  Azerbaijan” approved by the Decree of the President of the Republic of Azerbaijan №511 dated  June 19, 2001.

2.3.1. Debt obligations and money market instruments portfolio – minimum 85% of the Portfolio;

2.3.2. Equity portfolio – up to 5% of the Portfolio;

2.3.3. Real estate portfolio – up to 5% of the Portfolio;

2.3.4. Gold portfolio – up to 5% of the Portfolio.

2.4.1. The benchmark for the debt obligations and money market instruments portfolio (excluding assets denominated in Euro) is the 3 (three) month LIBOR (interest rate published by the British Bankers’ Association) for corresponding currencies.

2.4.2. The benchmark for the EURO denominated assets in the debt obligations and money market instruments portfolio is 3 (three) month EURIBOR.

2.4.3. The benchmark for the currencies without any corresponding LIBOR can be a widely used 3 (three) months interest rate that banks charge each other for money interbank deposits.

2.4.4. The benchmark for the equity portfolio is MSCI World Index.

3. Risk management requirements

3.1.Interest rate risk –the target duration is determined by SOFAZ depending on the current situation of the global financial markets and should not exceed 48 months.

3.2.Credit risk – The credit ratings of the securities of SOFAZ have to be in accordance with the requirements set in the “Rules on management of foreign currency assets of the State Oil Fund of the Republic of  Azerbaijan” approved by the Decree of the President of the Republic of Azerbaijan №511 dated  June 19, 2001.The maximum average weight of one specific security or one issuer (excluding depository banks) in the Portfolio should not exceed 15% of the total value of the Portfolio.

3.3.Liquidity requirements – Liquidity of the Oil Fund’s assets should be at a reasonable level in order to ensure accurate and timely execution of planned money and other transfers related to budgetary expenditures of SOFAZ. For that reason, a part of assets equivalent to not less than USD 100 million (minimum liquidity level) should be kept in cash or cash equivalents. If minimum liquidity level is breached, it should be restored within 7 (seven) calendar days.

3.4.2. Investment policy (investment mandate) of the external manager(s) involved in the management of the assets of SOFAZ is reflected in the investment management agreements signed between SOFAZ and the respective manager(s).