Sovereign wealth funds across the globe are looking for ways to diversify their risks by expanding investments beyond traditional asset classes.
In the last decade, the state oil fund SOFAZ -- an entity that accumulates and manages Azerbaijan's oil and gas revenues -- has been growing rapidly both in terms of the size of assets under management and its investment structure. Thus, the Fund as a long-term investor is seeking stability of its real estate investments and thus aims to invest in assets in developed markets with long-term profitability. It plans property acquisitions in prime business districts of major cities around the world.
Last week, SOFAZ reported that it intends to invest about $1 billion in commercial real estate in one of the Asian countries in 2013.
SOFAZ now considers the possibility of investing in commercial real estate in Singapore, China, Japan, South Korea, Hong Kong and Australia.
"Investments in commercial real estate envisaged for this year are to be made only in one of these countries," the Fund said.
Earlier SOFAZ purchased Gallery Actor, a mixed-use office and retail complex located on Pushkin Square in Moscow for $133 million, an office complex in London's West End for £177.35 million and a property in Paris for €135 million.
Moreover, the Fund is eyeing the opportunity to purchase real estate in Turkey, Singapore, Indonesia and Malaysia.
According to SOFAZ's investment strategy, up to five percent of its investment portfolio may be placed in stocks, up to five percent in real estate and five percent in gold.
SOFAZ was established in December 1999 by a presidential decree. Its primary objectives are to help maintain macroeconomic stability in the country and to generate wealth for present and future generations.
Projected total cost (the average amount) of the SOFAZ investment portfolio for 2013 was set at 25.2 billion manats, while the figure was projected at the level of 23 billion manats in late 2012.
In late 2012, the number of SOFAZ subsidiaries abroad reached eight. All created SOFAZ subsidiaries are required to manage the real estate abroad.
SOFAZ subsidiaries in Russia and the UK own investment property in these countries. In turn, the subsidiaries in Luxembourg and France were set up in order to acquire the property and maintenance of investment property in Europe.Bulk of assets concentrated in Europe
SOFAZ has decided to invest about $600 million in the shares of companies in developed countries. The oil fund did not cite specific markets that it plans to invest in.
In the first quarter of 2013, SOFAZ also continued its policy of placing the fund's investments in short-term market instruments.
The share of funds invested for a period of up to five years accounted for 91.34 percent of the investment portfolio. As of January-March 2013, the total amount of the SOFAZ investment portfolio amounted to about $34.15 billion, or 99.5 percent of total volume of assets.
49.74 percent of the investment portfolio is held in securities for a period of up to one year, 39.27 percent -- from one to three years, 2.6 percent from three to five years, 2 percent for more than five years, and 6.66 percent is held in real estate, stock and gold.
As of March 31, 32.77 percent of the investment portfolio was held in securities with 'AAA' rating, 19.49 percent in those with 'AA' rating, 26.98 percent with 'A' rating, 19.48 percent 'BBB', and 1.28 percent in other securities. The fund's assets which are below investment grade may not be placed in securities.
SOFAZ assets are held partly in securities and money market instruments such as deposits and bank accounts. At present, 25.22 percent of the investment portfolio is held in the bonds of agencies and international organizations, 12.2 percent in sovereign debt securities, 9.58 percent in financial bonds, 23.59 percent in corporate bonds, 24.22 percent in short-term commercial papers, 5.17 per cent in guaranteed bonds, 0.1 percent in municipal bonds, 6.91 percent in deposits and money market instruments, 2.76 percent in gold,1.75 percent in real estate and 2.15 percent in shares.
The geography of the investment fund's asset placement is as follows: 59.85 percent of the assets are held in European countries, while 12.11 percent in North America, 13.21 percent in developing countries, 6.78 percent in Asia, 0.69 percent in the Middle East, and 7.36 percent in international financial institutions.
As of April 1, 2013, SOFAZ assets stood at $34.325 million, increasing 0.6 percent compared to early 2013.Ernst & Young cites growth in profit
Following an audit of the consolidated financial statements of SOFAZ for 2012, Ernst and Young Holdings said that the fund's assets were at the level of 26,890,136 manats at the end of 2012, which is a 14.4 percent increase from a year ago.
1,182,309 manats of the amount (up 53.3 percent) were concentrated in cash and cash equivalents, and 624.735 million manats were held in gold.
During the year, the long-term assets of SOFAZ increased 2.3 times, exceeding 876.6 million manats. Of these funds, about 338 million manats were invested in the purchase of real estate.
The net profit of the oil fund amounted to over 787.1 million manats, which is 34.76 percent higher than the figure posted in 2011.