Azerbaijani State Oil Fund’s investment portfolio exceeds $45 billion

The draft budget of the State Oil Fund of Azerbaijan (SOFAZ) for 2023 envisages revenues of about $9 billion and expenses of nearly 6.7 billion.

The remarks came from Bahruz Bahramov, adviser to SOFAZ's executive director, Trend reports.

He said the projected price per barrel of oil in the Fund's 2023 budget is assumed to be $50 per barrel.

"Revenues of 7.4 billion manats [$4.35 billion] are planned to be attracted from the execution of oil and gas agreements. At the same time, revenues worth 1.6 billion manats [$941 million] are projected from the management of the fund. In addition, it should be noted that 11.28 billion manats [$6.6 billion] are planned to be transferred to the state budget. Under the implementation of the mentioned budget forecasts, the budget deficit for 2023 is expected to be 2.4 billion manats [$1.4 billion]," he said.

According to Bahramov, in the approved SOFAZ budget for 2022, the amount of revenues associated with the implementation of oil and gas deals is estimated at 15.8 billion manats ($9.3 billion).

"From January to September this year, over 15.8 billion manat [$9.3 billion] was received into the budget of the Fund due to the execution of oil and gas agreements, and by the end of the year, this amount is projected to approach the mark of 20 billion manat [$11.8 billion]," he said.

Speaking about the SOFAZ investment strategy, Bahramov said that along with the goals of accumulating and managing oil and gas revenues for both present and future generations, one of the main goals of the Fund is to ensure macroeconomic stability and to reduce the negative impact of economic shocks on the country’s economy, that is, to act as an "airbag" when economic instability arises in foreign markets.

In addition, the adviser noted that 63 per cent of the portfolio is comprised of bonds and money market instruments, 18.7 per cent – of stocks, 6.3 per cent – of real estate and 12 per cent – of gold investments (101.8 tonnes). The currency structure of the SOFAZ investment portfolio is distributed as follows: 70.8 per cent in US dollars, 19 per cent in euros, 4.7 per cent in British pounds and the rest (5.5 per cent) in Australian dollars, Turkish lira, Russian roubles, Chinese yuan, Japanese yen and other currencies.

"By credit rating, 69.9 per cent of the portfolio of bonds and money market instruments are invested in AAA-rated instruments, with the remainder invested in AA [16.7 per cent], A [10 per cent], BBB [2.6 per cent] credit-rated instruments. Only 0.8 per cent of this portfolio is invested in non-investment grade instruments," he said.

Regarding equity investments, Bahramov said that the fund has built a portfolio covering more than 1,600 companies in 23 developed countries in 14 currencies.

"I would also like to note that since 2012, SOFAZ has been investing in various types of real estate in a number of developed countries in North America, Europe and Asia Pacific. Through direct, co-investment and equity investments, SOFAZ has invested in over 500 properties," he said.

Moreover, the expert said that the current economic and geopolitical realities are putting some pressure on the Fund's assets.

"Our fund's investment portfolio, like the portfolios of other institutional investors, is affected by the effects of COVID-19, the volatile energy market situation, inflation, and economic and geopolitical changes. Given that SOFAZ is a long-term investor, decisions regarding investments are not based on the short term, which is more speculative in nature," Bahramov said.

He recalled that the Fund's investment portfolio at the end of the third quarter of this year was over $45.4 billion.