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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. ]

Trump Goes Across the Political Aisle to Nominate Nellie Liang to Federal Reserve Board

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U.S. President Trump nominated Nellie Liang to the Federal Reserve Board of Governors. She is a long-time staff member of the Federal Reserve, joining in 1986 as a research economist. Liang must still be confirmed by the U.S. Senate pending the job post. She is a graduate of University of Notre Dame in 1979 and received her doctorate from the University of Maryland in 1986.

Ms. Liang is a registered Democrat.

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Ivanhoé Cambridge to Acquire Callahan Capital Properties

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Ivanhoé Cambridge, a unit of Caisse de dépôt et placement du Québec (CDPQ), signed a deal to acquire Callahan Capital Properties (CCP). Eastdil Secured advised on the transaction. CCP is Ivanhoé Cambridge’s investment partner of six years.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Manager of China’s Foreign Reserves Could be CalPERS Next CIO

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Numerous financial media outlets, including the Wall Street Journal (WSJ), are reporting that Ben Meng is in key position to become Chief Investment Officer of CalPERS. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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