Timor-Leste Petroleum Fund investment strategy update

Petroleum Fund investment strategy update

Ministry of Finance organized a series of information sessions on the update of Petroleum Fund investment strategy

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                                                                                                                          7 November 2014

Dili – Petroleum Fund Administration Unit of the Ministry of Finance recently organized a series of information sessions to key stakeholders informing them of the latest update of the Petroleum Fund investment strategy.  

 

These sessions took place in the Ministry of Finance from Wednesday the 5^th to Friday the 7^th of November 2014 and were attended by key stakeholders including members of the Government, Investment Advisory Boards and civil societies.

 

Mr. Peter Ryan-Kane, from Towers Watson, an external advisor to the Ministry of Finance on the Petroleum Fund’s investment, started the presentations mentioning that the Petroleum Fund investment strategy takes into account three core issues; sustainability, diversification and purchasing power of the Fund.

 

He recalled that when the Fund started, a simple investment strategy was adopted, mainly by investing in US dollar denominated high rated bonds. It was deemed necessary to avoid exposure to risk and volatility, while building capacity. However, he further elaborated that the then strategy was unsustainable, as every year a 3% of ESI was withdrawn, while the Fund’s investment would return less than 2% real.

Therefore, he argued that the fundamental reason for changing the Petroleum Fund Law was to diversify the Fund’s investment, by investing across and within different asset classes, to enable the alignment between the investment policy and fiscal policy. Diversification also helps the Fund to bolster capital preservation, by avoiding being concentrated in any one asset class.

 

The newly revised Petroleum Fund Law allowed for up to 50% allocation to public equities, not less than 50% in fixed income and not more than 5% in alternative instruments. It is expected that with the new investment strategy, 60% in bonds and 40% in equities, there would be a reasonable probability that in the long-term, the Fund would be able to achieve a real return of 3%, which is matched to the 3% Estimated Sustainable Income (ESI), the guidelines for annual transfers to the state budget.

 

The Government decided in 2012 to increase the public equity exposure by 0.83% a month over a period of two years to June 2014 as a prudent means of achieving a 40% equity exposure. Having a long-term investment horizon, the Fund is ready to assume the higher risk in order to pursue the expected increase in long-term average return. The Government also decided in 2013 to further diversify the Fund’s fixed income portfolio by reducing its concentration in US Treasuries. An initial exposure of 10% of the Fund was allocated to non-US developed market sovereigns, with 30% Eurozone and 10% country capped.

As of September 2014, the Fund invested 60% in US Treasuries, 10% in non-US sovereign bonds, and 40% in developed market equities. The Fund’s assets are being managed by BCTL (40%), BIS (10%), Interim Manager (5%), AllianceBernstein (5%), SSgA (18%), Blackrock (17%), and Schroders (5%). The Fund’s assets were invested across more than 2,579 securities, with more than 70% of them located in the US, and the remaining spread across Europe, Japan, the UK, Canada, Australia and other developed countries.

 

The Fund earned a net investment return of 4.4% or an accumulated $2.4 billion, since its inception in 2005. The 2013 was an outstanding year for equity markets in developed economies, while bond markets performed badly. The Fund’s equity investment performed exceptionally well in 2013, returned 27% for the year. The one year equity return, however, should be considered more of an exception than the rule, as it may be difficult for equity markets to post a similar result in 2014.

 

The divergent performance between equities and bonds illustrated the virtue of diversification. By investing in several asset classes that seldom move in tandem, the total Fund is shielded from the full impact of temporary negative returns from any one of these.

 

The Government is currently contemplating making further incremental improvements to the bond and equity portfolios by investing in a wider range of sub-asset classes to improve the risk and return characteristics of the Fund.

 

Ministériu Finansas organiza sesaun informativa konaba atuliazasaun estratéjia investimentu Fundu Petrolíferu

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                                                                                                                          7 Novembru 2014

Dili – Unidade Administrasaun Fundu Petrolíferu husi Ministériu Finansas foin lalais ne’e organiza sesaun informativa lubuk ida hodi informa ba parte interesada sira konaba atualizasaun estratéjia investimentu Fundu Petrolíferu.

Sesaun informativa hirak ne’e realiza iha edifísiu Ministériu Finansas nian hahú husi loron Kuarta, dia 5 to’o Sesta dia 7 Novembru 2014, ne’ebé atende husi parte interesada sira inklui membrus Governu, membrus Komite Asesoria Investimentu no Sosiedade Sivil sira.

Sr. Peter Ryan-Kane, husi Towers Watson, konsultór esternu ba Ministériu Finansas iha área investimentu Fundu Petrolíferu, hahú ninia aprezentasaun hodi mensiona katak estratéjia investimentu Fundu Petrolíferu sempre tau iha konsiderasaun asuntu importante tolu maka hanesan sustentabilidade, diversifikasaun no poder kompras Fundu Petrolíferu.

Nia fo hanoin hikas fali katak wainhira Fundu Petrolíferu hahú, ita adopta estratéjia investimentu ida simples hodi investe hotu deit iha obrigasaun sira nivel a’as demoninadu iha dolar EUA. Iha tempu ne’ebá estratéjia refere importante tebes hodi tulun Fundu evita espozisaun ba risku no volatilidade, no iha tempu hanesan mos hakbiit no hasae ita nia kapasidade. Maibe, nia elabora liu tan katak estratéjia refere la sustentável, tamba kada tinan ita hasai 3% Rendimentu Sustentável Estimativa (RSE) husi Fundu Petrolíferu, enkuantu investimentu husi Fundu refere fo deit retornu menus husi 2% real.

Tamba ne’e, nia argumenta katak razaun fundamental hodi halo mudansa ba Lei Fundu Petrolíferu maka hodi diversifika investimentu Fundu Petrolíferu liu husi halo investimentu ba iha klase ativu oin-oin, hodi nune’e ita bele hetan aliñamentu entre polítika investimentu ho polítika fiskal. Nia mos realsa katak diversifikasaun ajuda Fundu Petrolíferu mantein prezervasaun kapital, no evita risku konsentrasaun iha klase ativu ida deit.

Lei Fundu Petrolíferu foun ne’ebé foi lalais ne’e hetan revizaun prevee katak Fundu Petrolíferu investe másimu 50% iha ações públicas, no mínimu 50% investe iha rendimento fixo no la liu husi 5% investe iha instrumentos alternativos. Ita espera katak ho estratéjia investimentu foun, 60% iha obrigasaun no 40% iha asaun, iha probabilidade razoável katak iha longu-prazu Fundu bele atinji retornu real 3%, hanesan ho 3% RSE, ne’ebé sai hanesan sasukat transferênsia anual ba orsamentu estadu.

Governu desidi iha tinan 2012 hodi hasae investimentu ba ações públicas, ho montante 0.83% kada fulan durante tinan rua nia laran to’o Juñu 2014 hanesan meius ida prudenti liu hodi atinji objetivu alokasaun 40% ba investimentu iha asaun. Hanesan investor longu-prazu, Fundu Petrolíferu prontu atu asumi risku hodi nune’e bele atinji média retornu longu-prazu ne’ebé a’as. Governu mos desidi iha tinan 2013 hodi diversifika liu tan karteira rendimento fixo hodi redúz konsentrasaun iha Tezouru EUA. Espozisaun inísiu 10% aloka ba obrigasaun nasaun soberanu dezenvolvidu sira ex-EUA, ho limitasaun másimu 30% alokasaun ba Zonaeuro no másimu 10% iha nasaun ida.

Iha fulan Setembru 2014, Fundu Petrolíferu investe 60% in Tezouru EUA, 10% iha obrigasaun nasaun soberanu non-EUA no 40% iha asaun merkadu dezenvolvidu. Investimentu Fundu Petrolíferu jere husi BCTL (40%), BIS (10%), Jestor Interinu (5%), AllianceBernstein (5%), SSgA (18%), Blackrock (17%) no Schroders (5%). Fundu Petrolífefru investe iha mais de 2,579 títulus finanséirus, husi ne’ebé 70% investe iha EUA, no restu investe iha Europa, Japaun, Reinu Unidu, Kanadá, Austrália no nasaun dezenvolvidu sira seluk.

Desde Fundu Petrolíferu estabelese iha tinan 2005, ita hetan ona retornu investimentu líkidu 4.4% ou reseitas investimentu akumuladu hamutuk 2,4 biloens. Tinan 2013 sai hanesan tinan ida diak tebes ba merkadu asaun iha ekonomia nasaun dezenvolvidu sira, enkuantu merkadu obrigasaun la fo retornu ne’ebé diak iha tinan ne’ebá. Iha tinan 2013 deit retornu investimentu husi asaun a’as tebes ho 27%. Maibe retornu asaun tinan ida ne’ebá ita konsidera hanesan eksepsaun ida, tamba sei susar tebes ba merkadau asaun hodi fo rezultadu hanesan iha tinan 2014.

Diferensia iha dezenpeñu entre asaun no obrigasaun hatudu mai ita importansia husi diversifikasaun. Wainhira ita investe iha klase ativu oin-oin, ne’ebé dala barak iha mudansa la hanesan, maka Fundu sei hetan protesaun husi impaktu temporáriu retornu negativu entre klase ativu sira ne’e ida.

Governu agora daundaun hanoin hela atu hadiak liu tan karteria investimentu obrigasaun no asaun hodi investe iha sub-klase ativu sira seluk atu bele hadiak karaterístika risku no retornu Fundu Petrolíferu.