Libya’s sovereign wealth fund complained last year about steep losses in several of the funds in which it invested, noting it was paying millions of dollars in fees essentially to accrue millions more in losses, according to an internal report leaked Friday.
The Libyan Investment Authority internal report that details the claims offers a fresh look at the investments held by the oil rich North African nation’s largely opaque sovereign wealth fund. The report was obtained and released to media by the British lobbying group Global Witness.
The September report details the performance of six externally managed funds in which the LIA had invested a combined $1.4 billion from January 2009. By the time of the report’s release, the funds’ cumulative value had shrunk 23% to $1.08 billion.
The losses, in of themselves, were not surprising since the investments began at the height of the global financial crisis.
But the LIA said it was essentially paying high fees for the privilege of loosing money. One fund, for example, managed by the Permal Group was down 40% since its inception. The LIA’s $300 million investment in January 2009 had fallen to $180.9 million by July 2010, with $27 million in fees paid.
The LIA report said the fund had “consistently negative performance since inception,” and complained: “Very high fees for no value” while bemoaning what the sovereign wealth fund said was “very poor structure and management.”
A spokesman for Permal Group in London declined to comment.
Another fund, Palladyne, was down from $300 million to $272.8 million by the time the report was issued, with the proportion of the loss attributed to fees at 69%. The LIA report said $19 million was paid in fees and notes: “To date, we have paid in excess of $18 million in fees for losing us $30 million.” It said the fund was 40% below the broader MSCI world index.
It said that 45% of fund was held in cash, but provided no explanation why.
A call for comment left with Palladyne International Asset Management in Amsterdam was not immediately returned.
Libya’s foreign assets — estimated at well over $70 billion — were frozen under U.N. and Western nation sanctions as Moammar Gadhafi sought to violently put down an uprising against his regime. The country is currently embroiled in a civil war, with rebels in the east battling pro-government forces in the west.
Analysts, Western officials and critics have argued that the Libyan leader of nearly 42 years, and those close to him, made little distinction between the country’s assets and their personal bank accounts. Most of Libya’s wealth came from oil production and exports, which have plummeted since the start of the uprising in late January.
The LIA report showed that the total assets it managed climbed $10 billion, to $64 billion, in the span of three months — a gain that coincides with the climb in global oil prices.
Global Witness, which had released a similar LIA report in May, said that the wealth fund had deposited over $1 billion with Britain-based financial titan HSBC between last June and September. The infusion brought Libya’s balance with the bank to $1.42 billion, up from $292.7 million three months earlier.
The British group, in releasing an earlier LIA report dated June 30, 2010, had noted that several of the world’s largest investment banks, including HSBC and Goldman Sachs, held more than $5 billion in Libyan funds. The group called for regulators to look into whether state funds were diverted for Gadhafi’s personal benefit.
“One of the things we’re calling for is more transparency on how these funds are managed, to make it harder to potentially divert funds, or use sovereign wealth funds, for personal or political purposes,” Robert Palmer, a campaigner at Global Witness, told The Associated Press.
“We can’t continue with a situation where information about how a state handles its assets is only made available once a dictator turns violently on his own people and information is leaked,” he said in a separate statement.
The LIA report showed that Libya upped its investment in two major Italian companies. It invested an additional $500 million in UniCredit, the bank which the country’s foreign minister recently said would be responsible for distributing some funds to the rebels in the east. It also pumped in $360 million into oil giant Eni SpA, which had extensive operations in Libya.
In its externally managed investments, the LIA said that while the market was up by over 25% since January 2009, “our funds have scarcely moved and therefore, if they did not increase during the last two years, it is unlikely they will perform in times of uncertainty.”
The wealth fund said that accounting giant KPMG had recommended it reduce its position by $2.4 billion from the $4.5 billion under management at the time, to bring “it into line with 11% asset attocation weighing.”