oil fund


Baku turns to the State Oil Fund to save Azerbaijan economy - Financial Times (12.03.2015)

12 Mar 2015 17:04:00

Baku turns to the State Oil Fund to save Azerbaijan economy - Financial Times (12.03.2015)

When Shahmar Movsumov joined Azerbaijan’s state oil fund, Sofaz, in 2006, it had $1.2bn in assets under management, 30 staff, and only invested in one asset class — fixed income.

Now, Mr Movsumov is chief executive of the world’s 29th-largest sovereign wealth fund, with a $37bn pool of assets, includingreal estate in London, Paris, Moscow and Seoul, equities andgold.

“We have a map with flags in countries where we have investments — it’s almost covered with flags. That has happened in the past 10 years,” he says.

Speaking in Sofaz’s gleaming new €107m office building, which boasts its own gold vault, Mr Movsumov is conscious of the weight of expectations on his fund.

As Azerbaijan faces up to its toughest year since the oil boom began more than a decade ago, the country is looking to Sofaz to save the economy. For the first time since the oil fund was founded in 1999, the government will draw down some of its money.

“This is exactly the role of the fund and the framework that was foreseen since the beginning. We are testing the concept of the volatility reducer, or buffer,” says Mr Movsumov.

The heightened importance of its role will throw the spotlight on Sofaz, which is in the process of transforming itself from a conservative savings pot for excess oil revenue to a sophisticated global investor.

In recent years, it has moved beyond the staid world of bonds, adding equities, gold and real estate to its portfolio. It expects to start investing in China imminently, having just received approval for a 3bn renminbi quota from Beijing, Mr Movsumov says. And it is looking to expand in private equity by making an investment in a large western fund.

“This industry is completely new for Azerbaijan. We have built a world class asset management company in a country without any legacy of asset management,” says Mr Movsumov.

The next step will be to open an office abroad, most likely in London, he says, although he will not say when.

In the meantime, he has a domestic economic crisis to help avert. Mr Movsumov says the fund will probably be able to draw down several billion dollars without making any asset sales, thanks to the short-dated maturities of its fixed income portfolio, still 80 per cent of assets.

“I think we are in better shape that any other big reserve-accumulating country.

“Look what is happening in Venezuela or Iran which don’t have reserves — the fiscal impact is enormous,” he says.

“The vision that was put in place is resilient, and we can go two to three years with this situation.”