Rough Week for Libyan Investment Authority

Assets frozen in latest move.

March 1, 2011

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padlockI can tell you one thing for sure: the Libyan Investment Authority is having a rough week. With the delusional Gaddafi violating the human rights of his own people (and giving some interesting performances), the world seems to be taking action to constrain the regime through a variety of targeted sanctions. And, as a result, the Libyan Investment Authority will inevitably share in this pain. Why? Because the fund is managed by Gadaffi allies (see FT’s Alphaville and Tilt for more details).

The latest move has been to freeze the LIA’s assets. For example, the US has frozen upwards of $30 billion of Libyan assets, which includes a significant portion of the LIA’s capital. Canada has frozen the assets of the government of Libya, which probably refers to the LIA’s Verenex investment. Pearson (the company) has frozen the LIA’s 3.2% stake. In addition, the fund has taken some serious reputational hits, as Marco Tronchetti Provera, Chairman of Pirelli, recently quit the fund’s advisory board to protest the regime’s brutal treatment of the Libyan people. Also, Unicredit said they are increasingly concerned by the LIA’s shareholdings.

I guess my personal view is that the SWF, which should (in theory) belong to the people, should have its assets frozen until such a time as it can help an independent Libya rebuild. (Something along the lines of Hans Solo after the carbonite debacle.) Anyway, as Joseph Cotterill of FTAV says asset-freezing is one step towards taking the LIA out of the Gaddafis’ control and returning it to making investments on behalf of Libya’s people. Who, we’d argue, should have been its priority all along.” It’s pretty hard to argue with that. And given that the fund is often reported to have roughly $70 billion – which represents nearly 75% of the country’s GDP – the fund could prove extremely useful in reconstruction. So let’s freeze it until such a time as better leadership takes over in the country. Then let’s turn it over to them.

But, as you can imagine, it isn’t that simple. Can you tell me where the LIA’s assets are, exactly? I doubt it. While the fund is a signatory to the Santiago Principles, it remains one of the more secretive SWFs in the world. For example, the fund’s website is still “under construction” five years after the fund was established. So it’ll be challenging to locate all of the assets. In fact, a person who has worked with the fund told me that there is the distinct possibility that the LIA may not even know where all of its assets are (especially if the headquarters get looted or worse). For example, I’ve heard that some of the LIA’s subsidiaries do not keep complete records of their investments (which seems a bit farfetched to me but this person would know). So, the potential for massive theft is significant.

With this in mind, I thought I’d do a quick survey of what we know about where the LIA’s assets are actually located. And this is what I came up with:

  • We know that the LIA has invested a lot of money in Italy.
  • We also know, thanks to this Wikileaked cable, that the fund has focused much of its investments in the UK (specifically in financial services and real estate).
  • We know that US banks are managing a significant chunk of the fund’s liquid assets.
  • We know that Carlyle was the first big private equity fund to land a mandate.
  • We know that, roughly a year ago, the fund had 65% of its assets in North Africa, 20% in Asia, and 15% in Europe and the Americas.
  • We know that the fund has been risk averse, leaving most of its assets in cash and marketable securities (which is why it came through the crisis relatively well).
  • We know, thanks to some of my contacts that have worked with the fund, that the LIA has been pushing hard into real estate, infrastructure and commodities (and investing through in-house teams).
  • We know that the LIA managed to dodge ponzi-stars Madoff and Stanford.
  • We know the LIA was quite happy with its Canadian Venerex investment and was looking for similar deals.
  • We know that the LIA has an office in London and prefers doing business there than in the United States.
  • We know the LIA controls seven subsidiaries with a variety of mandates and objectives, which will complicate the process of tracking down all the investments.
  • We know, through one of my contacts, that the LIA has external mandates in fixed income, equities, commodities, infrastructure, hedge funds, private equity, and money markets.
  • We know, through one of my contacts, that the LIA has an internally managed equity portfolio targeting emerging and frontier markets.

And, as far as I know, that’s all we know. But that’s a start!

This post originally appeared on the Oxford SWF Project website.

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