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Q&A with Israfil Mammadov, CIO to the SOFAZ

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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. ]

Robert Priestley Exits Future Fund and ASX Boards

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Robert Priestley who was a member of Australia’s Future Fund Board of Guardians has resigned. He is the former the Chief Executive Officer of J.P. Morgan Australia and New Zealand (left in May 2017). He also resigned from his director role at ASX Limited. Priestley remains the non-executive chairman of J.P. Morgan Australia and New Zealand.

In a released statement by Priestley, he said, “Given my decision to step aside from the ASX board, I think it is also appropriate that I step aside from the Future Fund board of guardians.”

Australia and New Zealand Banking Group Ltd (ANZ) is in hot water with Australian regulators, facing criminal cartel charges on an ill-fated institutional placement. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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SWFI First Read, June 20, 2018

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State Street Launches Real Assets Fund Services Group

State Street Corporation formed a real assets fund services group in anticipation of further growth in world of global infrastructure investing. This newly-formed group will leverage the company’s existing real estate platform.

Cadillac Fairview Unveils Massive Building Project – Slated New HQ for OTPP

Cadillac Fairview is a real estate unit of the Ontario Teachers’ Pension Plan (OTPP). Cadillac Fairview, in a partnership with the Investment Management Corporation of Ontario (IMCO), revealed the construction of a new 46-storey office tower at 160 Front Street West, on the northeast corner of Front Street and Simcoe Street in downtown Toronto. This new building will be the headquarters of OTPP at 160 Front Street. This C$ 800 million development will be one city block from Union Station.

James Edwards Head to BMO Global

James Edwards was hired by BMO Global Asset Management to be director of U.K. sales. Previously, Edwards was a Fixed Income Product Specialist at BlackRock.

Peter Diamond Exits Deutsche Bank

Peter Diamond is exiting as Head of SSA Origination and Structuring at Deutsche Bank – a position he had in London.

Hideharu Ichii Joins AMP Capital

Hideharu Ichii left APG Asset Management Asia to join AMP Capital, effective July 2, 2018. Ichii took the position as a Portfolio Manager on AMP Capital’s global listed equity team in Hong Kong. Ichii was a Senior Portfolio Manager in listed real estate Asia-Pacific region at APG.

Keppel Corporation Sells Stake in Development

Shenyang SUNAC Xinxing Enterprise Management acquired a stake for US$ 43 million in the Keppel Township Development (Shenyang) Co. Ltd. from Keppel Corporation.

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Mauritius Aims to Sell Citizenship and Passports to Bolster National Wealth Fund

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The island country of Mauritius plans to offer foreigners a chance to obtain country citizenship in exchange for a non-refundable contribution of US$ 1 million to the national sovereign wealth fund. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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