BAKU, Azerbaijan, July 31. The State Oil Fund of Azerbaijan (SOFAZ) must improve its forecasting and management mechanisms to address discrepancies between projected and actual revenues from the country's share of hydrocarbon production, Trend reports, referring to the latest report of the Chamber of Accounts on the execution of the 2024 budget of the Oil Fund.
The report emphasizes the need to enhance risk management related to sales prices, strengthen transparency and oversight with contractors, and improve coordination with relevant institutions for the effective implementation of these processes.
The Chamber of Accounts issued several key recommendations for SOFAZ. These include analyzing the reasons behind monthly fluctuations and the significant year-end growth in the Fund's liquidity, especially in current account balances, and refining liquidity planning to ensure more balanced and targeted fund management throughout the year.
Moreover, it also highlighted the underperformance of the Fund’s private equity portfolio compared to its target return, calling for diversification across sectors and geographies, and strengthening analysis based on indicators such as asset life cycles, liquidity profiles, risk–return ratios, and manager effectiveness. The Chamber stressed the need for a clear action plan to address the low returns.
Improving the institutional framework governing investment decisions in private equity was also advised, including refining project selection criteria with results-based indicators and implementing effective mechanisms for continuous performance monitoring and accountability.
Regarding the real estate portfolio, the Chamber noted the necessity of finalizing a benchmark structure, considering time requirements and previous efforts to identify appropriate benchmarks. It also suggested revising regulatory frameworks to align with this goal.
Given SOFAZ’s long-term strategic objectives, including preserving wealth for future generations, the Chamber recommended adopting real return as a core principle in fund management and ensuring this approach is reflected in evaluations and benchmark selection.
The report also pointed out that the real estate portfolio recorded a negative return of -2.9% in 2024. While this was attributed to a global market slowdown, the Chamber advised improving risk-sharing mechanisms with partners, establishing criteria to balance profitability and risk, and enhancing the evaluation of asset retention or sale strategies in line with market conditions.
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