African SWFs as Strategic Capital ‘Anchors’ and Co-Investors
Good morning, I am the Chairman of the Sovereign Wealth Fund (SWF) of Angola. It is a fund which is funded by oil which is one of the main assets of the country. It has played a very important historical role throughout the developmental stages of the country. As some of you may know, Angola became independent in 1975, ever since then it has been very turbulent. We had the civil war up until 2002, so that means even though Angola started to produce oil in the 90s, a lot of this oil was primarily used to fund this unstable process where the country couldn’t develop very much. A lot of the oil activity was done off-shore, so there were no investments in infrastructure. Oil really started to be used by the government to invest in infrastructure only from 2002 onwards. This is when the mining and investments on the roads could be done and also investments in sectors such as energy, health and so forth.
I believe that investing in infrastructure is really a work for the state/government because there you are investing in public goods. There are ways where there can be commercial investments in infrastructure, but they have to be properly structured and a part of the discussion in this panel will be how to get this done.
As I mentioned, Angola was at war until 2002 and from then it invested with public funds into infrastructure and other developmental aspects of the country. Once the country gained some reasonable state reserves, it decided to invest these savings in a more efficient way. In 2011, the government decided to set up a SWF which would be funded by surpluses from a specific budget reserve. We started our work as a funded institution in 2013 with the objective of generating additional revenues from the state. We have an investment policy which dictates that we should have a diversified portfolio and it indicates that we should hold at least 30% of the assets of the fund in traditional investments. The remainder should preferably be invested in specific industries and asset classes that are non-traditional or alternative, which are also specified in this mandate.
As we stand today, the SWF of Angola has around 40% of its portfolio invested in securities; primarily in Europe and the US. Most of these securities are fixed-income assets so they are mostly commercial loans which are performing quite well, a bit better than the government bonds. The remainder of the portfolio is invested in private equity vehicles. As many of the other SWFs here with me today, we have a mandate to also focus on infrastructure, but we treat that specifically as an asset class. We focus on investing in PPPs, specific government concessions with the right agreements in place and in industrial facilities.
As I mentioned, we have set up seven private equity funds, they are Limited Liability Partnerships. That means that the SWF is a limited investor, so it invests a specific amount and is liable up to that amount. There are general partners to these LLPs that are responsible for the management and the selection of the projects. There has been a lot of work in defining the strategy of these funds, they are open to co-investment, but they are primarily focused on investing in commercially viable Angolan projects and projects in the wider Sub-Saharan region.
Each of the funds is focused on a specific sector, our largest fund has US $1.1 billion in capital and it is focused on energy, PPPs and industrial projects. The other six funds are focused on agricultural, mining, healthcare, timber and structured equity projects. Each of these funds has an investment horizon of 10 years plus and it is expected to earn an annualized IRR (Internal Rate of Return) of 8% plus over this period. So the whole approach is to really create assets that will generate revenues for the State. In our case there is a very clear split between what is public investment – in the sense of defining what has to be funded by the budget – and the other investments which should be commercial, where the SWF could invest.
The Board of the SWF is responsible for deciding whether or not to invest in these projects because really the mandate is to generate revenues for the State and not necessarily to invest in projects for political reasons. Obviously, when the two issues can be combined it is very much welcome and agreeable but there is a clear focus on being pragmatic in selecting the right projects to make sure that the savings of the State can actually earn revenues. In a nutshell, that is the case of Angola. Thank you.
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