State Oil Fund of the Republic of Azerbaijan — Summary

May 12, 2013

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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.


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