Internal Report Shows Even Before War, Libya’s SWF Was in Chaos

(July 1, 2011) – A 2010 audit of the Libyan Investment Authority (LIA) showed the country’s multi-billion dollar sovereign wealth fund (SWF) in complete disarray, almost a year before the country became embroiled in a civil war, the Wall Street Journal reported.

The report, internally published in April 2010, revealed a wildly mismanaged portfolio and investment policy devoid of oversight or deliberation.

In an analysis of the SWF, the auditors said that there were “no effective policies in place” to insulate the fund’s managers from conflicts of interests or taking bribes. “Portfolio management tools, risk management tools, investment accounting, reconciliations and reporting systems are urgently required.”

The report detailed startling missteps and blunders, such as how the LIA bought large currency hedges for currencies that it did not own. A picture emerges of Western firms descending on the fund and taking advantage of the fund’s inexperience by overcharging it and selling it investments it didn’t need, the Wall Street Journal reported.

Another leaked document dated September 30, 2010 reveals a furious LIA directing anger at its investment partners, the Financial Times reported. Investments with BNP Paribas, Credit Suisse, and the Permal fund of hedge funds were all targets of criticism. “High fees have been directly responsible for the poor results,” the document concluded.

The Securities and Exchange Commission (SEC) is investigating multiple firms over possible illegalities involved with the LIA. Those under investigation include Goldman Sachs, ExxonMobil, ConocoPhillips and Occidental Petroleum Corp., aiCIO has reported. UK prosecutors have also joined the SEC in investigating the concerns.

Libya has been involved in a civil war since February 2011. The current value of the LIA is unclear, as the United States and other governments have frozen most of Libya’s assets. Other leaked documents pegged the fund’s value at $64 billion as of November 2010.