The former president of Azerbaijan, Heydar Aliyev, founded
the State Oil Fund of the Republic of Azerbaijan (SOFAZ) in
1999 to accumulate and manage Azerbaijan’s oil and
gas revenues. SOFAZ receives these from the State Oil Co. of
the Azerbaijan Republic (SOCAR), which in turn acquires the
proceeds of production-sharing contracts with leading oil and
gas companies, such as London-based BP. SOFAZ began investing
in 2001, focusing on fixed-income securities: debt instruments,
money market funds and cash alternatives.
As an extra-budgetary institution as well as a stabilization
fund, SOFAZ has responsibilities to the government and national
development projects. The fund finances infrastructure projects
throughout Azerbaijan, as well as socioeconomic projects, such
as providing for refugees and persons displaced internally as a
result of the Azerbaijan-Armenia war. SOFAZ also helps finance
the state budget, with an amount that it agrees upon annually
with the president.
Still, SOFAZ’s investment operations are
independent from those of the government. The fund has its own
internal management structure, including a supervisory board,
an executive director, and departments including asset
management, finance and accounting, as well as other divisions
that deal with its expenditures. SOFAZ has internal investment
management capabilities but also uses outside fund managers for
some parts of its portfolio. The fund makes commitments to
funds and development projects both domestically and abroad.
SOFAZ prefers to invest in Europe and North America.
SOFAZ is an active member of the International Forum of
Sovereign Wealth Funds (IFSWF) and adheres to the Santiago
Principles, which delineate best sovereign wealth fund
practices. SOFAZ is also a member of the Extractive Industries
Transparency Initiative (EITI), a coalition of governments,
companies, investors and other international organizations that
promotes transparency and accountability in the extraction of
natural resources around the world.