Angola’s sovereign wealth fund sets sights on alternatives

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By:
Kanika Saigal
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Issues around transparency remain as Angola’s sovereign wealth fund gears up to invest.

Angola – Africa’s second-largest oil producer – is set to deploy up to a third of the country’s $5 billion sovereign wealth fund (SWF) in alternative assets, targeting sectors including real estate, tourism, agriculture and mining, says José Filomeno dos Santos, chairman of the SWF, the Fundo Soberano de Angola (FSDEA).

Special purpose vehicles have been set up by the fund to identify commercial opportunities, which will mainly take the shape of private equity investments, he says.

Jose dos SanTOS
José Filomenodos Santos

“The Angolan fund is following a pattern we are seeing within many sovereign wealth funds, as monetary policy in the west has changed due to the global financial crisis, and also because opportunities are becoming more attractive, albeit riskier, in the alternative investment sphere,” says Dos Santos.

“And this is a route highly suited to Africa, which has huge infrastructure needs, physically and institutionally. These may not be typical investments for governments to make, but at the same time the private sector is pretty timid when it comes to investing in Angola and the region.”

One third of the fund, which has already been put to work, has mainly been in liquid assets in mature markets that can be easily turned into cash. The final third will be more opportunistic, targeting distressed assets in emerging markets and developed markets, explains Dos Santos.

The SWF will continue to grow off the back of the country’s immense oil wealth, which accounts for 80% of the country’s tax revenue and 40% of GDP. According to ratings agency Moody’s, Angola is set to produce between 2.1 million and 2.2 million barrels of oil per day by 2016.

Nevertheless, one of the SWF’s main aims is to diversify away from the oil sector. “To do this, we need to build capacity and expertise at home, so we have also introduced various incentives to encourage Angolans to start working in the financial and hospitality sectors,” says Dos Santos.

The fund has been a long time in the making. In 2008, Angola’s president José Eduardo dos Santos – Dos Santos’s father – announced the establishment of the special commission to put together the SWF. In 2011, the fund was legally ratified, and was officially established as the FSDEA in 2012. In June this year, the final instalment of the $5 billion endowment was transferred to the fund.

Transparency issues

The oil-rich country has long been criticized due to a lack of transparency and a lack of fiscal discipline under the current president, who has been in power since 1979. According to data released by the Human Rights Watch in 2010, between 1997 and 2002, around $4.2 billion disappeared from government coffers, equal to nearly all foreign and domestic social and humanitarian spending in Angola over the same period.

With respect to the FSDEA, the appointment of Swiss firm Quantum Global, which has close ties to the Angolan state, as the fund’s asset manager underscores the nexus between politics and capital in the west African nation accused of kleptocracy.

Quantum’s advisory board is chaired by Jean-Claude Bastos de Morais, the founder of Banco Kwanza Invest (BKI) – Angola’s first investment bank. Ernst Welteke, a former governor of Germany’s Bundesbank, is also a member of the advisory board for Quantum and the chairman of BKI. Dos Santos has worked closely with both men as former director of BKI before stepping down in 2012.

I am doing the best I can and I am working to the best
of my abilities. Everyone is the son of somebody

José Filomeno dos Santos

“Choosing Quantum Global was the result of a lengthy process,” says Dos Santos. “We carried out a survey throughout the region to find the significant players in private equity space. We found that supra-nationals were not really there, so we had to look at other players in the space. Then we looked at asset managers which had worked with governments and assessed their recent performance.

“Quantum was one of the larger firms that had consistent performance throughout. So far our partnership has been successful.”

Indeed, Dos Santos has seen his position at the fund come under scrutiny, with some arguing his appointment as chairman was due more to nepotism rather than his expertise – but he rebuffs this criticism.

“All I have to say about that is my career is in finance and I have been appointed to this job, and I am doing the best I can and I am working to the best of my abilities to ensure that we have a successful fund," says Dos Santos. "Everyone is the son of somebody.”

Upbeat note

Dos Santos strikes an upbeat note about the Angolan economy, saying: “Over the last decade, the Angolan government has invested a lot in an institutional capacity, something that was majorly lacking during times of unrest, and the focus was elsewhere. 

“Now, this has changed and SWF comes as one of the efforts by the government to create institutions that are more transparent and accountable according to international standards.” 

In August, Moody’s upgraded its credit rating for the country’s sovereign debt to Ba2 from Ba3 with a stable outlook, due in part to the implementation of structural reforms and a testament to the country’s drive for reform, says Dos Santos.

That same month, the fund launched a scholarship programme for the “future leaders of Angola”, which intends to offer intensive management courses, which focus on international business management and banking and finance. 

At the same time, the FSDEA announced the completion of a study for the launch of a new “hotel school for the African continent”, which will aim to teach proficiency in the hospitality sector.