The investment strategy of SOFAZ Essay

. Indeed, Lehman Brothers which was found in 1850, Americas 4th biggest investment bank after Goldman Sachs, Morgan Stanley, and Merrill Lynch declared its bankruptcy in 2008. It is the largest bankruptcy case in the USA so far. What happened to them, the company did have AAA rating. But if you were so nave just to make your investment by relying on 3 world leading credit rating organizations, and put all your eggs into one basket you will probably lose all of you asset within months.
Then what can be best option for the middle sized investment company in comparisons to those like Lehman brothers, sovereign fund to choose? The simplest answer will be diversification. The investment strategy of SOFAZ also based on considerable diversification of asset classes, among G-7 countries and Turkey Russia because of strategical ties to these countries. G-7 countries are chosen because of their competitive advantage in terms of macroeconomic stability, availability of transparent economic situation and developed financial institutions. All above mentioned measure are taken in order to make sure continuous positive returns from the made investment as well as assuring the invested amount will grow over time and will not make substantial losses.
Although the day to day tactical decision are made within SOFAZ, general framework and investment guidelines are created and implemented by the supervisory board of SOFAZ and under direct supervision of the President of Azerbaijan Republic. The investment policy is approved on yearly basis by the president of Azerbaijan Republic. As the investment operation are conducted primarily in foreign currencies Rules on managing the foreign currency assets of the State Oil Fund of the Republic of Azerbaijan" ("Investment Guidelines"), approved by Presidential Decree No.511 of 19 June 2001 (SOFAZ annual report, 2014)
Similar to all other operations, the investment operations must be in compliance of existing framework in Azerbaijan and the legal framework where the investment are made. For example, when SOFAZ buys real estate in Japan or Russia although the legal framework in respective countries are different all the investment must be differentiated and adapt to the all domestic rules and regulations that has connection with SOFAZ investment. The investment guideline is the general reference rule for the investment decisions. The guideline comprises which asset classes can be used in order to build the portfolio, in which currencies the invested asset will be kept, make clear limits of credit grades, which asset can be invested. In general, investment policy from which asset classes will the portfolio be constructed, in which currencies this strategically allocated asset will be kept, which benchmarks will be used to estimate the performance of assets, what are the risk appetite for the funds investment which differs from asset class to asset class, from currency to currency, from country to country.
At first SOFAZ followed conservative strategy in its asset management operations. Through the time the available resources for investments increased. Stating from 2012 increasing returns allowwed the fund to diverse its investment portfolio. The size