Libya Business News: Managing Libya’s $67 billion Sovereign Wealth Fund


July 30, 2015, by Padraig O’Hannelly.

Full article available here.

 

Libya is complicated. With two rival governments, controlling rival armies that themselves contain competing factions, it’s hardly surprising that control of one of Libya’s biggest assets, its $67-billion sovereign wealth fund, is also contested.

To some extent, the battle for control of the Libyan Investment Authority (LIA) mirrors the divisions within Libya itself, while the seemingly random bag of assets that it owns could be a metaphor for the chaos afflicting so many aspects of Libyan society.

Attempting to bring some structure and direction to the fund is the Chairman of the Board of Directors at the LIA’s Tripoli headquarters, AbdulMagid Breish (pictured); also claiming to chair the company is Malta-based Hassan Bouhadi — more on this power struggle later.

When I sat down with Mr Breish in London, the veteran banker outlined his plans to restructure the business and take on the might of Goldman Sachs and Société Générale (SocGen) in court.

As regards the litigations, he said, “we have set aside … a huge amount of money – nine figures. We really want to see both litigations go until the very end, and we are willing to fund them no matter what it takes, and no matter what it costs.”

Restructuring

In addition to fairly liquid investments in cash, bonds and equities, about half of the LIA’s value is accounted for by 550 unquoted companies, many of which are being managed by the company. Mr Breish’s plan is to put all non-core assets into a ‘legacy’ company, with a view to selling them off as soon as practicable, while holding onto the investments that are more suited to the needs of the fund.

Ultimately, he wants to split the remaining business into three distinct parts:

  • The Future Generation Fund: With operations based in London, this would be a typical ‘sovereign wealth’ fund;
  • The Local Development Fund: Already in existence, its aim would be to kick-start the local economy, providing seed capital for major infrastructure projects that would eventually be sold to the private sector; and,
  • The Budget Stabilization Fund: Requiring a new act of parliament, this would be funded from a levy on oil revenues, and would invest in short-term instruments with the intention of having funds available to cover budget deficits.
    Each of these entities would have different risk profiles and return benchmarks, which are still in the process of being determined.

“We are not going to reinvent the wheel,” said Mr Breish, “we will learn from other sovereign wealth funds … we are close to some … we would start with a very very conservative approach, and be guided by our investment managers … it’s still a work in progress.”

“I don’t think you can pursue returns of 6 and 7 and 8 percent on a very conservative strategy – not these days at least.”

But in his vision, those investment decisions would not be made in-house: “We decided that we were not going to manage any more any investments, we would become a manager of managers … We would [out]source the investment managers, we would hire best-of-breed investment consultants, advisers on risk, on [asset] allocation, on investment theory.”

Unfreezing

But with close to 85 percent of the fund subject to sanctions, the LIA’s ability to put this plan into action is somewhat restricted, at least for now. “If the situation deteriorates,” Breish says, “I would request that the remaining 15 percent are also frozen.”

“I’m expanding my legal dept, I’m expanding my compliance department … we’re closing some companies, we’re liquidating some companies, we are looking at merging some areas … We won’t really go full force until there is clarity as to ‘is there a government?‘; ‘is there a mandate for the LIA?‘; ‘will there be new people or will we get a second mandate?”

Leading

And the question of a second mandate — his three-year contract finishes mid-2016 — brings us to the burning topic of his position. Appointed by then Prime Minister Ali Zeidan, in his role as Chairman of the Board of Trustees of LIA, Breish says he ‘stepped aside’ from operational control — others say he ‘resigned’ — while he was investigated under Libya’s Political Isolation Law, suspected of having been too close to the Gaddafi regime.

He was cleared by the Court of Appeal earlier this year, but in the meantime the country had fractured and the new internationally-recognised government in Tobruk, under Abdullah al-Thinni, had appointed Hassan Bouhadi as Chairman of the LIA. Breish believes his appointment is still legally valid, and says he has operational control of the organisation:

“[Mr Bouhadi] has no de facto power over LIA, the only thing is he set up an office in Malta … Our counterparties know where all the business is happening … they recognise Tripoli head office as being the LIA … They know who has the background – if you look at the CVs of the people involved [in the rival LIA], they know nothing about financial affairs or finance or legal or the investment sector.”

And he says he is adamant that the LIA should not be aligned with either of the rival governments:

“I’m saying LIA should retain its neutrality, LIA should steer away from political infighting, we’re not funding either government, we’re staying above that.”

His opponents, similarly, pull no punches. A statement from Mr Bouhadi’s LIA said “Mr Breish suggested that this [court] judgement reinstated him. An assessment of the judgement by an experienced lawyer in Malta said that it did nothing of the sort.”

Tobruk’s Charge d’Affaires to Malta issued a circular to government ministries and financial institutions saying:

“Mr Abdulmagid Breish does not represent the LIA or the Libyan Government and has no legal capacity in relation to the LIA or the legitimate Libyan Government and in no way represents them.

“Furthermore the Embassy warns that any company or institution from dealing with said Mr Breish … will face the necessary legal action and liability.”

Just as for the country of Libya, the weeks and months ahead look set to be very interesting for the LIA and Mr Breish, and possibly no less complicated.