“We would want to have something that is not someone else’s credit risk,” Movsumov said. “In a world where you see the changes in geopolitics, changes in reserve currencies, changes in the dynamics between superpowers and their imminent impact on the financial sector, you want to be on the safe side.”
In addition, Movsumov noted that the fund avoids large investments in bonds and especially in stocks. This approach allowed the fund to avoid losses in the past year, he added.
“We decided that it was not the right time to increase investment in equities, and we were right,” Movsumov said. “As life showed, last year was a very bad year for equities.”
“Our peers made a lot of losses because of a bigger allocation into stocks,” Movsumov said.
While SOFAZ wants to take more risks as a long-term investor, the “risk appetite” of its stakeholders - the country’s citizens and local media - isn’t yet there, he said.
SOFAZ had had more success investing in real estate, which has generated a “very steady income,” Movsumov said.
It has bought commercial real estate in London, Paris, Milan, Moscow, Seoul and Tokyo, and is still looking at markets in Europe, North America and Asia for more opportunities, he noted. There’s more interest in Asia because of better prospects for economic growth, he said.
All of the gold SOFAZ buys overseas is transported to Azerbaijan to be stored in its new building on Baku’s Heydar Aliyev Avenue. Asked why the fund doesn’t want to keep at least part of its gold holdings abroad, Movsumov said it’s a purely commercial decision and has nothing to do with trust.
“If you look at the returns on gold investments, they are so miserable that if there is a small change in tariffs on imports of gold, that will simply eat up all your returns,” Movsumov said.
SOFAZ was established in 1999 with assets of $271 million. As of the end of the third quarter of 2018, SOFAZ’s assets increased by 8.9 percent as compared to early 2018 ($35.806 billion) and amounted to $38.987 billion.
Based on SOFAZ's regulations, its funds may be used for the construction and reconstruction of strategically important infrastructure facilities, as well as solving important national problems.
The main goals of the State Oil Fund include accumulation of resources and placement of assets abroad in order to minimize the negative effect to the economy, prevention of "Dutch disease" to some extent, promotion of resource accumulation for future generations and support of current social and economic processes in Azerbaijan.
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