This interview appears in the 2Q Y2011 issue of the Sovereign Wealth Quarterly.
ISRAFIL MAMMADOV IS CHIEF INVESTMENT OFFICER OF THE STATE OIL FUND OF THE REPUBLIC OF AZERBAIJAN (SOFAZ). Currently, SOFAZ ranks a 10 in the Linaburg-Maduell Transparency Index.
1. Is the current global market providing a positive investment environment for SOFAZ, and what type of changes would you like to see?
Similar to other investors whose portfolios consist mainly or entirely of fixed-income securities, SOFAZ suffers from the current low-yield environment in the financial markets. Therefore, SOFAZ reduces duration and favors higher coupon bonds in order to avoid negative return. Moreover, credit spreads remain wide and there are still some good values in lower credit rating securities. SOFAZ takes advantage of these opportunities by shifting towards lower credit rating securities. Additionally, considering the current environment in some emerging markets and southern European countries, SOFAZ also benefits from the current investment opportunities in these markets.
It goes without saying that, the best possible way to benefit from the current environment would be the introduction of equities and alternative investments to current portfolio, which SOFAZ is planning to start investing in soon.
2. Will 2010 go down in history books as a good year or bad year for sovereign wealth funds, and why? How did 2010 impact SOFAZ?
In general, 2010 has been a good year with significant upward trends in SWFs’ assets under management. SWFs gained positive returns from their investment portfolios, even though these returns were comparatively lower than 2009 levels. Recovery in global financial markets continued with a slow pace in 2010.
2010 has also witnessed post-crisis tendencies, one of which was the shift of geographical focus of investments. High level of unemployment and economic slack faced in developed countries has made investments unattractive in these countries. On the contrary, investments in the emerging markets have seen significant rise during the course of 2010. Another tendency was a shift towards equities and alternatives, since fixed-income markets have not provided high returns over 2010 due to low yields and high volatility of prices. However, the opposite is true for equities, which demonstrated decent level of growth (5-7%).
SOFAZ investment portfolio faced 1% return in 2010 – the lowest return since inception. This level of return is characterized by several reasons. Firstly, it was due to the ultra-low yield environment dominating the market. Another reason is that a large portion the investment portfolio consisted of short-term maturity bonds. Finally, unexpected sovereign debt crisis observed in some European economies also contributed to the level of returns of the SOFAZ investment portfolio in 2010. From the beginning of 2010, SOFAZ started investing in securities with lower credit rating, in order to increase returns without taking high interest rate risks, as well as to diversify its investment portfolio.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
The China Investment Corporation (CIC) has long struggled with its investments in coal assets, specifically in globally-listed coal miner SouthGobi Resources Ltd, which operates its flagship coal mine in Mongolia. In November 2009, CIC and SouthGobi Resources inked a convertible debenture deal. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
MSCI, a stock index company whose benchmarks influence investor behavior, has tremendous indirect power impacting the stock markets of smaller economies. In 1988, MSCI released its emerging markets index, a now-widely-used benchmark for many institutional investors wanting access to growth markets. China and South Korea make up the majority of the benchmark, but smaller economies such as Poland, Chile and even Qatar make up other pieces of it.
[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Dutch soft-drink bottler Refresco Group N.V. has agreed to a buyout offer for all 81.2 million of its shares from French private equity firm PAI Partners SAS (PAI) and Canadian pension manager British Columbia Investment Management Corporation (bcIMC) in exchange for €20 in cash per ordinary share for a total consideration of €1.623 billion. Refresco’s major shareholders, which includes 3i Group, and shareholding members of its boards, who represent 26.5% of outstanding shares, have said they stand behind the deal.
Refresco’s board rejected an initial offer from PAI in April 2017 of €1.4 billion, which they felt did not adequately capture the value added by their plans to bolster its presence in North America through the acquisition of Canadian bottler Cott TB, a deal that went through in July for US$ 1.25 billion.
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