Geopolitical issues, in particular the rise of protectionism, are a threat to the free flow of capital, a condition of investment extremely important to large global institutions, says Shahmar Movsumov, executive director of the $39 billion State Oil Fund of Azerbaijan.
In an interview at the International Forum of Sovereign Wealth Funds in Morocco, Movsumov, who was elected to the board of the IFSWF on Wednesday, said protectionism needed to be addressed.
At the forum, participants are celebrating 10 years since the creation of the Santiago Principles, which are credited with bringing transparency, accountability and a rule book on best practice to the sovereign wealth fund community, which represents about $10 trillion.
“When the principles were created 10 years ago, they were far-sighted and achieved a lot,” Movsumov said. “Today, there are new threats, protectionism is rising again…This might mean renewing the Santiago Principles, or maybe there are other ways we can impact that.
“The free flow of investment and capital is the most important thing for all of us, and protectionism is becoming a threat to that.”
The Oil Fund of Azerbaijan was one of the first member funds of the IFSWF to do a self-assessment of progress on the principles.
“This helped us see our gaps in relation to governance, accountability and disclosure and we made some minor adjustments,” Movsumov said. “For other SWFs, newcomers, it has been a rule book, an important set of best practices.
“They have also been important for the whole industry. [A decade] ago, SWFs were not well known players, and there were some misconceptions and concerns around their investments. This has disappeared. We are what we declare and thanks to the Santiago Principles and the IFSWF, we can show we are prudent, institutional investors without any hidden objectives.”
The Oil Fund of Azerbaijan was established in 1999 with $270 million and has grown to about $39 billion.
Its policy portfolio is 60 per cent bonds, 25 per cent private and public equity, 10 per cent real estate and 5 per cent gold. The fund has dual purposes – the stabilisation of the economy and the needs of future generations. Due to the stabilisation objective, it currently has a lot of liquidity so, in reality, about 80 per cent of investments are in bonds, managed internally.
This year, the fund will contribute about $6.5 billion to the government’s budget and will receive about $10 billion from oil contracts. Azerbaijan is one of the fastest-growing economies in the world, due to its energy sector.
The executive director of the oil fund is appointed and dismissed by the president of the Republic of Azerbaijan.
For more on the Santiago Principles see: