SOFAZ to increase investment in public, private equities

Azerbaijan's state oil fund SOFAZ plans to increase the proportion of public and private equities in its investment portfolio, as it further diversifies its asset.

SOFAZ submitted a proposal to the supervisory board to increase its investment in public and private equities by up to 25 percent in its portfolio, Reuters reported citing Fund's Deputy CEO Israfil Mammadov.

"It will be done step-by-step at the expense of fixed income," Mammadov added.

Mammadov said any risks related to investment in equities "could bring some volatility over the short-term but over longer term this strategy should earn higher returns because of risk-return trade-off."

The $35 billion fund of the energy-rich Azerbaijan holds the proceeds from oil contracts, oil and gas sales, transit fees and other revenue, and uses its investment proceeds to help pay for social spending and infrastructure projects.

The fund has also been investing directly in real estate since 2012 by acquiring prime commercial properties in Europe and Asia Pacific.

SOFAZ has since 2015 invested in real estate funds managed by investment firms including Blackstone, Starwood, Prudential Global Investment Management and AXA Investment Management.

"The aim of these investments is to enhance returns and reduce volatility by achieving greater diversification both geographically, but also within various real estate asset classes," Mammadov said.

Mammadov said no changes were expected in the fund's foreign currency portfolio, keeping the share of the U.S. dollar at 50 percent, the euro at 35 percent, and the pound at 5 percent and other currencies at 10 percent.

He said the fund also had no plans to sell its assets in Russia, where it owns a multi-use commercial property located in central Moscow and is a shareholder in VTB bank.

"Our investments are not speculative and have long-term goals," Mammadov said.

Assets of the Fund as of October 1 stood at $35.82 billion, with some $33.95 billion accounting for the investment portfolio and 1.87 billion falling to a share of the manat account.

As much as 20.7 percent of the total volume of financial means was placed in real estate, assets, and gold, while 79.3 percent was placed in bonds and instruments of the monetary market. Some 13.3 percent fell to a share of securities with AAA rating, 27 percent with AA rating, some 35 percent with A rating. Some 18.3 and 6.4 percents accounted for securities with BBB and BB rating respectively.

Some 3.8 percent of the investment portfolio is placed in gold, as many as 5.3 percent falls to a share of estate, while some 11.6 percent accounts for assets.

The Fund’s transfers to the 2016 budget are forecasted to stand at 7.6 billion manats ($4.6 billion), while the forecasted index for 2017 stands at 6.1 billion manat ($3.7 billion).

SOFAZ was established in 1999 with assets of $271 million.