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

A 2010 internal document from the Libyan Investment Authority has revealed that the multi-billion dollar sovereign wealth fund was wracked by mismanagement and confusion months before NATO’s intervention into the country.

(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.

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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.

To contact the aiCIO editor of this story: Benjamin Ruffel at <a href='mailto:bruffel@assetinternational.com'>bruffel@assetinternational.com</a>

Report: Short-Term Investing Nature Inhibits Embrace of ESG

First State Investments in Australia has warned that the short-term nature and focus of financial markets is inhibiting consideration of environmental, social and governance (ESG) issues in capital allocation and could be detrimentally impacting long-term company and investment performance.

(June 30, 2011) — A new report by Colonial First State Global Asset Management in Australia asserts that environmental, social, and governance (ESG) factors must play a bigger role in investment decisions.

Research conducted by Colonial First State Global Asset Management (CFSGAM) revealed that the top rated ESG stocks in its Global Listed Infrastructure portfolio outperformed the bottom-rated stocks by more than 20% over a three year period to May 2010. The results give further weight to the argument that ESG factors and performance are interlinked, the report claimed.

In its fourth annual Responsible Investment Report, Australia-based First State, known as CFSGAM, said that the short-term nature of investing is inhibiting the consideration of ESG issues in their asset allocation decisions. Long-term, the firm said, investment performance could be harmed if ESG factors are ignored.

“As a fiduciary it is our responsibility to make the best possible investment decisions on behalf of our clients,” First State CEO Mark Lazberger stated. “Critical to that process is appropriate consideration of environmental, social and governance issues as these factors significantly impact long-term company performance.”

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According to the report, First State — the fund management business of the Commonwealth Bank of Australia — has outperformed most other signatories of the Nations Principles for Responsible Investment (UNPRI) during 2010.

“It is pleasing that since signing the UNPRI in early 2007 we have made significant steps towards achieving this target and now sit in the top quartile in four of the six principles,” Lazberger said. “We are currently focusing on principles two and three and are actively seeking to achieve top quartile rankings across five of the six principles in 2011.”

Amanda McCluskey, Head of Sustainability and Responsible Investment added: “There is still a level of misunderstanding within the industry regarding the difference between socially responsible or ethical investing and integrated ESG management…We take this approach because pricing sustainability issues into every investment decision allows us to protect our clients against ESG-related risks and enhance the investment performance of our funds.”

The report follows a survey released June 13 of pension funds, foundations, and investment managements firms revealed that the majority of respondents saw global climate change as both a potentially significant investment risk and as an opportunity.

The Global Investor Survey on Climate Change: Annual Report on Actions and Progress 2010 was conducted by Mercer Investment Consulting.

Overall, the survey found that 98% of pension funds and foundations and 87% of asset managers believe that global climate change poses risks but also offers opportunities. It also found that 57% of pension funds and foundations and 80% of asset managers make specific reference to climate change risk in their investment policy. The results were belied somewhat, however, by the composition of the respondents. Those surveyed were members of the North American Investor Network on Climate Risk, the European Institutional Investors Group on Climate Change and the Australia/New Zealand Investor Group on Climate Change. Altogether, the respondents manage a combined total of more than $12 trillion.

The survey results accompany an increased push within parts of the industry to make ESG concerns more central to investor mindsets. Large asset owners like California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS) have headed the effort. Recently, those public pension plans were among several that signed a letter to the companies of the Russell 1000 index urging the companies to implement ESG concerns into their business models.

To contact the aiCIO editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742