Forbes: Inside Libya – Interview with LIA Sovereign Wealth Fund Chairman AbdulMagid Breish
July 23, 2015, by Chris Wright
Full Forbes interview available here.
Even by its usual standards, the Libyan Investment Authority has undergone a year of upheaval. As if it’s not enough that the fund operates out of a damaged and fractured country with two different governments, the fund itself appeared to split in two this year, with two separate people claiming to be chairman, one in Tripoli and one in Malta. None of this has helped the fund’s continuing multi-billion dollar litigation against Goldman Sachs and Societe Generale. Meanwhile most of the fund’s at least $67 billion in assets are frozen by the UN.
Once central figure in all of this has been AbdulMagid Breish, who was chairman of the LIA, then had to step down while he was investigated for his previous links with the Gaddafi administration, then was cleared of those links by a Libyan court and (he says) reinstated, though the competing LIA in Malta contends that he has not been reinstated at all. I met with him in London this week. An edited transcript of the interview follows below, in two parts: click here for part 2.
A great deal has happened in the last year or so since we last met. But the first question has to be: who’s in charge?
Well, I’m at head office. My appointment started in 2013 for a tenor of three years; all I did was step aside until the court ruled in my favour a year later, and now I’m back at the position. Legally speaking, I’m the chairman. Head office is where all the records are, that’s where the address at the bottom of the letter-headed paper is, we’ve got all the contacts of the fund managers, we are the owners of record of all of the deposits and assets. We’re the ones appointing people in subsidiary companies.
The other party was appointed by the Tobruk government. They don’t have access to head office. They haven’t come to Tripoli. They set up an office in Malta – it’s like a virtual office – and they’re roving around various capital cities saying they’re the ones. More recently, they have been lobbying western governments and the UN to unfreeze the assets, which is absolute folly. This is not the day for it. We should keep everything frozen until we have a government of unity, and we have clarity, and we have tranquility.
For all practical purposes I consider myself to be the chairman and I consider them to be rogue directors. I have filed with the public prosecutor in Libya criminal cases against them.
There’s no further level of the court that could prolong [your removal under the Political Isolation Law]?
They can appeal, whoever is pushing this, but that appeal can take months if not years, and may not even be considered. I’m reinstated.
The other side says: Tobruk’s the internationally recognised government, therefore we’re the internationally recognised…
Well, hold on. Hold on a minute. What the international community is saying is that we do recognise that the House of Representatives is the only democratically elected body, full stop. We are also aware that the court in Libya issued a ruling that the HOR was unconstitutional and that therefore any resolutions are invalid, like appointing a Tobruk government. What the international community has said is that it is studying and considering what this court order means. It does recognise that the HOR is the only freely elected democratic representative of the electorate, but that’s where it stops.
If you see the actions of the Tobruk government, it wants to establish another national oil company, NOC, in the east; that went nowhere because the international community told them this is a red line. NOC happens to be in Tripoli because Tripoli is the capital. NOC over the decades has established systems, protocols, governance, procedures, contracts, agreements with third parties. The system works and they’ve got people there. What do you have in Tobruk? Just an office saying NOC? Apparently they want to set up a central bank also. Again the international community said no, that’s a red line.
So yes, the HOR is the recognised elected body, but I think it stops there, and the proof is what I told you: how the international community has dealt with the central bank and NOC, and by inference that would trickle down into LIA too.
What possible way forward is there now, with you launching legal cases against Mr Bouhadi [the head of the other LIA in Malta]? How can you bring the LIA back together?
At the moment what we are doing, because of all the upheaval that’s going on with no tranquility in the country, is focusing on our litigations. We spent the last four months trying to bring back on track the two main litigations we nearly lost because of the irresponsible actions of Mr Bouhadi and his group. Finally a receiver has been appointed, the law firm has been reappointed and the litigations are back on track. But a tremendous amount of damage has been done because we spent unnecessary time, money and effort – and this is public money – in doing what? We went full circle and appointed the same lawyers we had four months ago.
So Enyo is back representing you?
Enyo is back.
Back in Tripoli, we’re also looking to see what low-hanging fruit we could deal with. Before I left in 2014 I managed to get a three year strategic plan fully budgeted to transform LIA to where we wanted it to go. This was a process we started in 2013 with Oliver Wyman and Deloitte . We spent close to five months assessing what we had. Are the assets intact, are they in our name, are they under our control, where are they, are they core or non-core, performing or non-performing, are there any litigations against them? Then with Deloitte we reached a valuation for the group, as of December 31 2012, of $67 billion. Subsequent to that, with everything frozen, some assets went down, some went up, but net net there was an additional non-realised profit mark to market of close to $3.5 billion by the end of 2014.
The other thing we did with Oliver Wyman was to focus on competencies, governance, skills, and transforming the LIA model from a hotchpotch holding company of 550 companies around the world and portfolios that weren’t really managed well, to where we want LIA to be. We want it to be within the top 10 sovereign wealth funds as far as governance, structure, transparency and model. We reached the conclusion LIA would not manage its own money: we would use best of breed investment advisors to advise on risk appetite and allocation and selection of asset managers. We would hold beauty parades and appoint asset managers and become a manager of managers.
The second point was that there would no longer be one person driving decisions: invest here, invest there, buy that building. Instead everything would be done by committee, and by pre-set mode of action. We formed a three-year plan that was fully budgeted. We started in 2014 and ended up with 18 different task forces, and had been implementing for three or four months when the political isolation law came. My successor came on board, and two months later there was a split in governments and everything stopped.
But there is some low-hanging fruit we have implemented: building up our legal department, compliance, working on core competencies, cutting away dead wood, be it companies or people. We’ve classified the 550 companies into two different buckets. One will be called legacy, with a specific team dealing with it: companies that have no value, are non-core, need to be liquidated or sold or wound down, and that’s a two year process.
Then there’s another bucket called holdings, and these are companies that have value, or could be sold or merged for a profit. That needs a different approach and team. It’s like good bank, bad bank.
We have also created a Future Generations Fund, and that’s really the core of LIA, the sovereign wealth part of it. That’s all the liquid assets we had, the international bonds, equities, investments in certain funds, alternatives. We need to sit and assess: are these adequate investments? At the moment everything’s frozen under sanctions but we need to start this assessment now so that by the time there is a unity government – hopefully in a couple of months – the team can start working, appointing investment advisors, looking at risk profile, appetite and allocation.
It’s all frozen? I’ve also read 80% is frozen.
It’s about 80 to 85%.
What’s not frozen?
What is not frozen in UN language is anything that came after September 2011 – income – but that’s not really much, there hasn’t been any new funding into LIA. We have some foreign currency we use for litigation, advisors, consultants, and we have a lot more liquidity in Libyan dinars left with banks locally. That pertains to another subsidiary called the Local Libyan Development Fund.
So we have three funds and two portfolios – the legacy and holdings portfolios I mentioned, the local development fund that is fully funded and has adequate liquidity, the future generations fund into which all the liquidity that is to be deployed internationally will go, and we have approval to establish a budget stabilisation fund. This is connected to a law that needs to be passed in parliament to say that there will be a 10 to 20% deduction at source from oil proceeds to be injected into LIA.
How will the funding for the Budget Stabilization Fund work?
The government at any point in time can come and say: I need to fund the deficit. They need to get approval from parliament, within parameters – they can’t go and say we need $200 billion. If they have approval from parliament, the fund gives the money on condition that the money is repaid from next year’s income, and if it’s not, they can’t borrow. So automatically oil proceeds would be used to extinguish the debt. It will only work if parliament approves that there will be yearly funding into LIA of 10 to 20% of oil receipts.
We’ve taken this model from the Norwegians, but the Norwegian model absorbs the entire proceeds of the oil sales. We are using the same structure at a less aggressive funding rate.
It sounds similar to the Kuwait Investment Authority, with its future generations fund and budget fund.
You said yourself this is no time for the funds to be unfrozen, that it needs a unified government first. Why would you have confidence a unified government can be achieved?
You know, people are really fed up. The people in the street, the silent majority, is fed up. The country has been liberated from a brutal dictator, everyone was hopeful, there was enough money to rebuild the country, and nothing happened. Four years later you can still see the same potholes, except they’re bigger. There are no airports, there’s no infrastructure work in anything, hospitals, schools, law and order. It is four or five years of wasted opportunities. Even the fighters on the battleground are fed up. They want to go back home. There’s only a few people who thrive on this situation, and they know that if peace and tranquility comes there’s no place for them anymore, because everything has to be done in a proper manner within the law. It doesn’t serve anybody’s purpose to carry on like this because sooner or later the country will be bankrupt.
Do you have any sense of reaching out between the two sides?
I think a lot of the parties have gone and signed. I understand there is hesitancy but within the next two weeks something should give. It’s in the interest of everybody to get on with it.
If that happens, what do you need to see to be convinced it’s the right time to unfreeze assets and start putting money to work afresh?
We need to see that there’s a government. We need to see that there’s law and order on the ground, and what assurances there are. The new prime minister is going to be deciding who the new board of trustees are for LIA, and who the new board will be. If we are still around, we will carry on with the plan we have, in full force. That means activating our London presence. That’s where the kitchen’s going to be. We won’t manage money from here because of tax, but we will be meeting advisers and fund managers and consultants here.
You used to say that management would happen from Malta.
No, Malta was in the plan, but that was a continuity business planning exercise. At that time when we were putting these plans together, the then Prime Minister was abducted. I called a meeting the next day. I said: if this happens to the prime minister it can happen to anybody. So we put a plan together saying if this becomes a bit more acute we will start operating out of Malta. It’s contingency planning, like if you have an earthquake or a fire or a coup. We never really used it.
Returning to litigation, a lot of time has been taken up with this internal dispute. I remember being in the pre-trial hearings here in London, and even then the volume of discovery, the sheer number of emails to go through, was worrying people in terms of time. Can you still do this in the timeframe envisaged?
Yes, I think so. When they start getting into it they will continue with discovery and assessing all the details. Listen, already what they’ve had is dynamite, just from a few papers they were able to get into. The two cases are different obviously, but they have enough in both cases. I am very confident the cases will continue very well in our favour. I’m very happy Enyo is back. The receivership structure is not perfect, because the receiver needs to instruct the lawyer and the receiver has no idea or background of who the names are or the actors, but the receiver will come back to both parties to seek instruction.
This bit puzzles me. BDO, as receiver, taking instruction from two different people telling it what to do.
We agreed that we will hold monthly meetings together, as long as this issue of authority remains. But if a unity government is set, the authority issue will vanish into thin air and the receivership model will disintegrate and go back to the status quo.
But given the situation now, it requires you and Mr Bouhadi to get into the same room and agree on what the instruction to the receiver should be?
Yes, but the receiver has ultimate authority. He can sit with us and ask us questions, he doesn’t have to take our answers as instructions.
With respect, Goldman, SG and Herbert Smith [representing both banks] must be looking at this whole situation with some delight, thinking: these guys can’t mount a case if they can’t speak collectively.
Well, now we’re talking collectively. On these two cases we’re in agreement.
Obviously they will try to throw the case out of court, they will throw the issue of authority into the middle, but there’s no issue of authority here. We have agreed there is a lawyer and a receiver. It should go to trial early next year.
You raised the question of security in Tripoli. I haven’t been there for 16 months but the picture we have in the west since then is not a good one at all. What’s the reality of life on the ground?
I can tell you what I do. I go to my office in the morning. I don’t have guards with me, I don’t have an armoured vehicle, I have my meetings. Before I came here I had a lot of meetings with the Public Prosecutor’s Office, which is working perfectly well; with the audit bureau, with the government ombudsman called the Public Office for Inspection and Control; I’ve visited all these people and their offices seem to work fine. Traffic is OK. The problems we saw before, when there was fighting and Tripoli airport was burned, all that has dissipated. We are out and about late at night sitting in cafes. It’s peaceful. The allegations that LIA’s offices are controlled by armed militias, I don’t know where they get that from. In the afternoons I’ve for a small plot, like a little farm. I go there by bike.
You don’t fear for your safety?
You might be hit by a bus when you leave this building. Or a terrorist attempt that brings down the Tune. Anything can happen. At this moment, I see things as having pacified.