Investment policy

1. Main directions of expenditures of the assets of the State Oil Fund of the Republic of Azerbaijan (hereinafter -SOFAZ)

1.1. Upper limit of transfers to 2025 the state budget of the Republic of Azerbaijan;

1.2. Financing of the “State Program on strengthening international competitiveness of the higher education system in the Republic of Azerbaijan for 2019-2023”;

1.3. Funding of the "State Program for the education of young people at prestigious higher education institutions of foreign countries for 2022-2028" approved by Order No. 3163 of the President of the Republic of Azerbaijan on February 28, 2022.

1.4. Financing of the implementation of international dual degree programs in accordance with Presidential Order No. 673 dated July 22, 2025 “On additional measures related to increasing the international competitiveness of the higher education system in the Republic of Azerbaijan”;

1.5. Financing of the measures envisaged in Part 1 of Presidential Order No. 836 dated December 5, 2025 “On additional measures related to strengthening the capacity of the vocational education system.

2. Investment Policy of SOFAZ for 2026

2.1 The objective of the Investment Policy of SOFAZ

2.1.1. In 2026 – SOFAZ will implement an investment policy aimed at maximizing returns while minimizing the probability of substantial losses

2.2. Investment Portfolio

2.2.1. Forecasted size of the investment portfolio of SOFAZ

2.2.1.1. The total projected value (weighted average size) of SOFAZ’s investment portfolio for 2026 is anticipated to be USD 64.8 billion.

2.2.2. The currency composition and allocation of the investment portfolio:

2.2.2.1. USD is the base currency of the investment portfolio. A minimum of 85% of the investment portfolio value shall be invested in assets denominated in USD, EUR, and GBP, subject to annual review by the Supervisory Board.

2.2.3. Sub-portfolios of the investment portfolio

2.2.3.1. Investment portfolio of SOFAZ consists of the following Sub-portfolios:

2.2.3.1.1. Fixed Income Sub-portfolio - up to 30% of the portfolio, with a maximum lower deviation of 10%.

2.2.3.1.2. Equity Sub-portfolio- up to 25% of the portfolio, with a maximum upper deviation of 3%.

2.2.3.1.3. Real Assets Sub-portfolio- up to 10% of the portfolio, with a maximum upper deviation of 3%.

2.2.3.1.4. Gold Sub-portfolio- up to 35% of the portfolio, with a maximum upper deviation of 4%.

2.2.3.2. Composition of the Sub-Portfolios of the Investment Portfolio

2.2.3.2.1. The Fund’s Fixed Income Sub-Portfolio consists of money market instruments, deposits with central (national) banks, and debt instruments;

2.2.3.2.2. The Equity Sub-Portfolio consists exclusively of equities included in internationally reputable stock market indices, as well as participation interests in equity funds, including collective investment schemes, that invest in equities and in debt instruments without a credit rating, provided that their maximum volume does not exceed 7 percent of the total value of the investment portfolio;

2.2.3.2.3. The Real Assets Sub-Portfolio consists solely of participation interests in funds and collective investment schemes that invest in real estate, infrastructure, and in debt instruments related to real estate and infrastructure that do not have a credit rating, including direct investments in real estate;

2.2.3.2.4. The Gold Sub-Portfolio consists exclusively of gold bars that comply with the requirements applied by the London Bullion Market Association (LBMA);

2.2.4. Target Return of the Investment Portfolio

2.2.4.1. The target return (benchmark) for the management of the Fund’s Fixed Income Sub-Portfolio shall be based on the relevant currency-denominated ICE BofA Fixed Income Indices;

2.2.4.2. The target return (benchmark) for the Equity Sub-Portfolio shall be based on the MSCI Stock Market Indices;

2.2.4.3. Pursuant to Clause 4.2 of the Rules on the Safekeeping, Placement, and Management of the Foreign Currency Assets of the State Oil Fund of the Republic of Azerbaijan, approved by Decree No. 511 of the President of the Republic of Azerbaijan dated 19 June 2001 (hereinafter referred to as the “Rules”), no target return (benchmark) shall be applied to the Gold Sub-Portfolio.

2.3. Risk management requirements of the investment portfolio

2.3.1. Interest rate risk

2.3.1.1. The weighted average duration of the debt instruments sub-portfolio shall be determined based on current global market conditions and may deviate from the respective benchmark duration by no more than six months.

2.3.2. Credit risk

2.3.2.1. Excluding depositary banks and sovereign debt obligations of benchmark-listed countries, the maximum exposure to a single financial institution or investment asset shall not exceed 10 percent of the total value of the investment portfolio;

2.3.2.2. Credit rating requirements for investment assets in which SOFAZ’s foreign currency assets are placed shall be determined in accordance with the Rules;

2.3.2.2.1. Assets included in SOFAZ’s investment portfolio as a result of investments made for the purpose of implementing measures envisaged by acts of the President of the Republic of Azerbaijan shall not be subject to the 5 percent upper limit on allocations to non-investment-grade debt obligations or money market instruments set out in Paragraph 3.3.1.7 of the Rules.

2.3.3. Liquidity requirement

2.3.3.1. Liquidity of the SOFAZ’s assets should be at a sufficient level to ensure full and timely execution of planned cash and other transfers related to budgetary expenditures of SOFAZ. To fulfil this at least USD 100 million (minimum liquidity level) must be held in highly liquid short-term money market instruments. The shortage in minimum liquidity level should not exceed more than 7 (seven) business days.

2.3.4. Requirements with respect to external managers

2.3.4.1. The external manager or its parent company must hold a credit rating at or above investment grade from a recognized international rating agency (Standard & Poor’s, Fitch, or Moody’s). Alternatively, the manager must have at least five years of successful asset management experience or expertise in managing assets valued at no less than USD 1 billion.

2.3.4.2. The total volume of funds allocated to external managers must not exceed 60% of the overall investment portfolio. The maximum amount allocated to any single external manager must not exceed 5% of investment portfolio.

2.3.4.3. The investment mandate and duration of engagement for external managers involved in the management of assets of SOFAZ must be specified in the agreements signed between the Fund and the respective managers.