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The battle for the Libyan Investment Authority

Chris Wright
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Mohsen Derregia was plucked from nowhere to run the $60 billion fund of the Libyan Investment Authority. He found a mess that he spent a year trying to clean up. Now, as many of LIA’s investments are being reassessed, he’s on his way out. He tells an extraordinary tale of sovereign wealth in a conflict-torn country.

You are a country emerging from a bloody revolution that has ended 42 years of stultifying dictatorship, and you have one crown jewel: a sovereign wealth fund, fed with national oil wealth, with perhaps $60 billion of assets. So where do you go, in these liberated but uncertain times, to find the right man to run it? In Libya in 2011 you went, it turned out, to the University of Nottingham Business School.

Mohsen Derregia became chairman of the Libyan Investment Authority in April 2012 following a process he describes today as "totally a freak accident". Indeed, the appointment of an academic, who had left Libya to become a research fellow at Manchester Business School in 2001 before shifting to Nottingham in 2006, puzzled some in the MENA investment community and continues to do so today. "He’s a professor of accounting," says someone formerly close to the LIA. "He hasn’t got a clue about finance." But those who knew him before his move to the UK recall instead a successful entrepreneur in Libya, and not such a strange choice: no investment expert, sure, but a safe custodian for a vital institution.

"A friend of mine called and said: 'We like your CV. We’re asking for people in senior positions in Libya, and we want some new people to join’," Derregia tells Euromoney from Tripoli. After some cajoling, and on the condition that he would only consider supervisory part-time roles, he expressed interest. First he was proposed as a trustee member on the LIA’s supervisory board; then he was asked to be a director, involved in LIA’s management. Next he ended up on a committee of three executive directors with the power of a board. "And then people started withdrawing, having seen the amount of work required," he says. "I ended up being the only remaining person on this committee of three." And hence, in April 2012, he became chairman of the LIA almost by default, and then CEO in May. "I remember the prime minister calling me," he says. "He said: 'It’s down to you. We can’t all walk away. Somebody has to take responsibility. Somebody has got to do this in the new Libya.’"

And so he did. But 11 months on, after an exhausting glut of frozen assets, entrenched interests, obstruction and opacity, he must wish he hadn’t bothered: three days before Euromoney’s interview, and after months of speculation, he received word from the government informing him that he was to be replaced at the helm of the LIA. He is challenging the legality of his removal, but is resigned to leaving, with a bitter sense of progress lost. "I want the government to understand that in the new Libya, even if you have the power, you must act within the boundary of law, of rules and regulations," he says. "Otherwise, we shouldn’t have gone out on February 17 and deposed Gaddafi. Because it’s going to be exactly the same."

The LIA took shape in stages between August 2006 and April 2007 following the lifting of UN, European and US sanctions against Libya in 2003/04. It was backed, from the outset, by Seif al-Islam, Muammar Gaddafi’s second son, and his shadow would remain over the institution long after the revolution and his arrest.

It has become commonplace to depict the LIA at this early stage of its development as a bunch of oil-rich buffoons, corrupt, uninformed and unaccountable, but the true picture was far more nuanced than that. From the outset, there were senior, experienced people at the LIA, among them Mohammed Layas, the LIA’s first chairman, who had been chairman and general manager of the Libyan Arab Foreign Bank; and Hatim Gheriani, who became CIO (or at least was given that title, if not the responsibility and freedom that might imply) in April 2007. Gheriani was an experienced ex-Commerzbank investment banker who had worked with Layas and has since gone on to HSBC.

There were also highly regarded external advisers. "What gave us confidence," says one early recruit, "was that we arrived on day one, and on day two Ernst & Young turned up. They were hired to build a structure and develop internal manuals. It made us feel they were serious about doing it properly." Next, Mercer was hired to advise on asset allocation and corporate governance, putting together a suggested structure that would yield average annual returns of 7%, and offering use of its best-in-class fund manager database. At one stage the LIA even hired a PR firm, Financial Dynamics, to help with disclosure policy. "I know this will sound funny to you," says a former staffer. "But our role models were Norway and Singapore."

Still, there were early signs of authoritarian interference. The other key early hire was Mustafa Zarti, who worked alongside Layas as deputy head; his main qualification appears to have been that he met Seif Gaddafi while studying for his MBA at Webster University in Vienna.