libyan investment authority transformation strategy
DESCRIPTION
Libyan Investment Authority Transformation StrategyTRANSCRIPT
LIBYAN INVESTMENT AUTHORITY TRANSFORMATION STRATEGY
Libyan Investment Authority
Creating a world-class sovereign wealth fund to support Libya's future
1
Libyan Investment Authority 2
LIA has taken critical steps to transform itself into a world-class sovereign wealth fund
– New strategy approved by the Boards in July 2013
– Multi-year transformation program initiated in October 2013
– Revised Law 13 will require approval, to reflect improvements in governance, investment approach and organisation
– Complied with Isolation Law, limited board appointments to two per person and intends to comply fully with the Santiago Principles over time
EXECUTIVE SUMMARY
LIA will create three new funds for all future investments, with clearly defined mandates, governance and rules for inflows and outflows
– Future Generations Fund (for long-term savings invested internationally)
– Budget Stabilisation Fund (for cushioning budget shortfalls)
– Local Investment & Development Fund (for stimulating major private sector projects in Libya)
LIA’s historic illiquid assets will be transferred to two non-permanent portfolios over the next 3- 5 years:
– Holdings Portfolio (for performing assets)
– Legacy Portfolio (for non-performing, dormant or non-strategic assets)
LIA faced significant challenges in repairing damage done by a long history of interference and corruption under the previous regime
Libyan Investment Authority 3
• Funding for the new funds should come from existing LIA assets, Central Bank’s excess foreign reserves, government budget surpluses and directly from oil revenues
• LIA UK in London will be expanded to provide support in three areas:
(1) place the investment analysis team close to the market;
(2) provide legal, audit and risk support on international investments and subsidiaries;
(3) provide training for Libyan staff
• LIA’s organisational structure has been revised, and a hiring plan for a CEO and other senior staff is in progress
EXECUTIVE SUMMARY
• Oliver Wyman was engaged to support and accelerate the transformation program through a number of major taskforces (13 taskforces activated as of Q1 2014)
• Deloitte was engaged to value LIA’s portfolio as of end 2012; and provided write-downs of the expected value of LIA’s subsidiaries and illiquid holdings
• A number of investigations have been launched into fraudulent transactions and legal action is being taken to recover some losses
• LIA has launched a broader communications program to demonstrate to local and international communities that LIA is a reliable and transparent manager of the Libyan people’s money
• LlA has developed its online communications by updating the website, launching a LIA Twitter account - @LIAchairman - and re-launching a public Facebook page
LIA will no longer invest internationally on its own, but will appoint best-in-class fund managers to manage funds and investment consultants to advise on asset allocation
Libyan Investment Authority 4
The Libyan Investment Authority aims to be a world-class sovereign wealth fund in terms of performance, transparency, ethics and accountability. We will play an active role over many years in improving the resilience of the Libyan economy and enhancing the well-being of the Libyan people
THE LIA’S MISSION
The Libyan Investment Authority will:
• Create an alternative, diversified source of wealth for Libya’s future generations other than proceeds from oil reserves and by investing internationally with a sustainable, long-term view.
• Stimulate Libya’s economy through major, transformational private sector projects, engaging international expertise through joint ventures and knowledge transfer.
• Provide stability against volatile oil revenues and government budget shortfalls.
Libyan Investment Authority 5
As part of delivering the new strategy and transformation, in 2014 the LIA Board of Trustee endorsed the following items:
Three year Transformation plan
and objectives to address identified challenges and enable a new strategy
NEW STRATEGY AND TRANSFORMATION
New organizational structure
which aligns with the strategy and enhances control functions, leveraging hubs in Tripoli and London
1 LIA Transformation Strategy
Libyan Investment Authority 7
• Domestic investment for socio-economic development • Stimulating private-sector projects in non-oil industries • Gateway for foreign expert partnership and investment
Budget Stabilisation Fund (BSF)
• Protection against oil revenue volatility • Replenished when there is surplus, available to cushion shortfalls • Cash and fixed income fund with tranches of different liquidities
Holdings Portfolio
• Private equity portfolio for current ‘performing’ direct investments • Assets sold over time or transferred to FGF PE allocation • Prevents distortion of FGF asset allocation and preserves quality
Legacy Portfolio
• Temporary portfolio for all non-core or non-performing assets of LIA; focusing on run-down or sale as profitably as possible
LIA will organise its assets into three new permanent funds and certain historic assets into two non-permanent portfolios, each with a clear purpose
Future Generations Fund (FGF)
• Savings for the future, after oil runs out • Investing internationally with a long-term view • Inflows a fixed percentage of oil revenues; outflows highly restricted
Non-permanent and to be established over the next 3-5 years
LIA ASSETS: THE PLAN
Libyan Local Investment & Development Fund
The LIA’s Long-Term Strategy
Libyan Investment Authority
Current LIA holding structure
Over several years, the LIA will move from a complex holding company structure to a simpler asset management structure
The new permanent funds will represent pools of assets under LIA, not legal entities
8
Future LIA fund structure
Budget Stabilisation
Fund
LIA as asset owner & fiduciary manager
Future Generations
Fund
Local Investment & Development
Fund
Legacy Portfolio
Holdings Portfolio
Permanent funds To be
established over the next
3-5 years
The LIA’s Long-Term Strategy
FUTURE LIA FUND STRUCTURE
LIA as holding company
Securities & Alternative
Investments Subsidiaries
Libyan Foreign Investment Co.
(LAFICO)
Oilinvest (Tamoil)
Libyan African Investment
Portfolio (LAP) Dalia Advisory
Limited Company
Itren Investment Limited Co.
Libyan Local Investment &
Development Fund
Maplecross Properties Limited
Associates
First Energy Bank
Libyan Norwegian Fertilizer Co.
Menadrill Investment Co.
Libyan Oasis Energy & Water Co.
Joint Ventures
Medco International
Ventures Limited
Woodside (N.A.) Ltd.
BP Exploration Libya Limited
Long Term Investment
Portfolio (LTP)
• 3+ layers of boards • 30+ holding companies • 550+ assets and companies
Libyan Investment Authority
1. Includes Special Projects, Comm. & PR and Secretary to the CEO
LIA will implement a new organisational structure which better aligns with the strategy and enhances control functions
Control Departments Support Departments 2. Deputy CEO and COO will be introduced once phase I of the Organizational Transformation has been completed
Phase II
Investment Departments
Non-Executive Chairman
Internal Audit
Equities
Fixed Income
Alternatives
Evaluation & Research
Legacy
Holdings
Resource Management
HR Planning
HR Services
IT
Facilities & Admin
Finance
MIS & Reporting
Financial Risk
Non-Financial Risk Compliance
Legal
Libyan Development
Fund2
CIO (FGF, BSF)
Holdings & Legacy HR Finance &
Control IT & Facilities Risk Management
Legal & Compliance
Treasury
Subsidiary LLIDF integrated
over time
COO2 Deputy CEO2
CEO’s Office¹ LIA Advisory UK Ltd (London) CEO
Audit & Risk Nomination / Comp
Phase I
Investment Governance
Board of Directors Committees
9
TARGET ORGANISATIONAL STRUCTURE
The LIA’s Long-Term Strategy
Libyan Investment Authority
DUAL LOCATION MODEL HUB APPROACH
10
1
LIA – Tripoli, Libya
• Head office (HO) location
• Decision making & policy setting body
• Primary base for majority of senior management, control and support staff as well as treasury and portfolios
LIA Advisory UK Ltd – London, UK
• Investment execution, analytics and research on behalf of LIA
• Provide services for select HO control functions as well as DR/BC site
• Center of investment talent excellence, training
• Primary base for investment team and specific specialised functions/individuals
1
2
The LIA’s Long-Term Strategy
2
Libyan Investment Authority 11
Key revisions to Law 13
• Streamlined responsibilities of Board of Trustees, Board of Directors and CEO
• Structures defined for new LIA funds and portfolios – Purpose and mandates – Governance – Inflows and outflows
• Clarification that it is a sovereign entity
not a corporation
Improved governance and transparency
• LIA becomes a ‘manager of managers’ – All investments to be made via best- in-
class external fund managers – Asset allocation to be recommended
by best-in-class investment consultants
• No LIA director or staff permitted to have more than 2 board positions
• All LIA directors and senior executive employees have submitted the Isolation Law form
Law 13 requires revision to enshrine the vision & mission in law, and overall governance must be strengthened to increase transparency & accountability
LAW 13 REVISION
The LIA’s Long-Term Strategy
Libyan Investment Authority 12
A transformation plan outlining key objectives has been defined to address significant challenges and enable LIA’s new strategy
Measure Key Transformation plan objectives
1. Strengthen LIA Core
• Launch clear internal and external communication at home and abroad • Strengthen organisation, including restructuring and hiring • Establish robust systems and operations, including IT architecture upgrade • Develop business continuity plan
2. Strengthen LIA & Subsidiary Governance
• Revise Law 13 for approval by the legislative body • Roll-out best practice governance, including new Board Committees • Strengthen controls across audit, risk and finance • Enhance reporting & MIS, including publication of Annual Review • Comply with Isolation Law and limitations on board memberships
3. Assign Initial Assets to Funds
• Allocate assets across subsidiaries into new non-permanent portfolios • Value >550 assets across subsidiaries using independent third party (Deloitte) • Unfreeze international assets at an appropriate time when a unity government is established • Take legal action related to past corrupt transactions
4. Establish Fund Structure
• Create three new funds for all future investments, including definition of Strategic Asset Allocation.
• Build-out LIA UK to support investment execution and specialized functions • Shift investment approach towards using external fund managers • Ring-fence historic, illiquid assets in new non-permanent portfolios
5. Align & integrate Subsidiaries with LIA
• Improve communication & cooperation between LIA and its subsidiaries in near-term • Integrate subsidiaries (staff, capabilities, etc.) over time and simplify structure, in a phased
approach, starting with LTP then moving on to other subsidiaries
KEY TRANSFORMATION PLAN OBJECTIVES LIA Transformation Strategy
Libyan Investment Authority 13
The 18 task forces will be aligned to the five key objectives, addressing the LIA’s main challenges.
The task forces will be activated at different times, as part of a multi-year program.
The approved board strategy provides for all taskforces: • Review progress & interdependencies • Oversight and steering • Ad-hoc content injection
A strong governance structure will be established to monitor taskforce progress, rapidly resolve issues and facilitate decision making.
The Transformation, led by the CEO and his Transformation Office, will be driven through by 18 major taskforces and will be overseen by the Board.
CREATION OF IMPLEMENTING TASKFORCES LIA Transformation Strategy
Libyan Investment Authority 14
Year 1: ‘Stabilising LIA’ Year 2: ‘Integrating Subsidiaries'
Underway Next wave
1. Strengthen LIA Core
2. Strengthen LIA & Subsidiary Governance
4. Establish Fund Structure
3. Assign Initial Assets to Funds
5B. Integrate Subsidiaries into LIA 5A. Align Subsidiaries with LIA
PLANNED IMPLEMENTATION OF THE TRANSFORMATION
LIA Transformation Strategy
2 Portfolio Performance Review
Libyan Investment Authority 16
• Allocations, benchmarks/ target at manager or investment level in line with the SAA and adjusted based on TAA
• Defines the target allocation and relevant benchmarks or absolute targets (to be determined)
• SAA for each of the 3 permanent funds
Strategic Asset Allocation (SAA) Risk &
investment goals in line with Strategy
Legal & regulatory requirements
Tactical Asset Allocation (TAA)
• Shorter term investment plan, incl. tactical adjustments, to meet SAA
Portfolio Performance Review
Best practice Sovereign Wealth Funds assess performance, aligned to their Strategic Asset Allocation, at manager and fund level
proficiency of performance evaluation
Manager/ Asset Selection
Guiding principles Performance measurement framework
Defining target returns and risk profiles for distinct funds based on SAA increases
Libyan Investment Authority 17
Select External Fund Managers • Manage assets based on the defined SAA
Description
Establish new fund structure
Select Investment Consultants (IC)
Select Transition Managers
• Determine Strategic Asset Allocation (SAA) & target returns for the three new funds
• Creation of three new permanent funds (FGF, Budget Stabilization Fund and LLIDF)
Revamp MIS & • Reporting
Enhance reporting to measure portfolio performance against target returns
• Liquidate or clean up existing marketable security investments to be transferred into the new fund structure
Portfolio Performance Review
LIA is undertaking several activities to enable best practice performance measurement going forward
Activities Responsible
• BoD – approves • Invest. Com./ mgt
recommends
• BoT – approves SAA • BoD – approves IC on • Invest. Com. / mgt advises
• BoT – approves • BoD – recommends
• CEO – oversees • COO/ Finance & IT Dept.
Heads – develops, implements
• BoD – approves • Invest. Com. / mgt
recommends
Libyan Investment Authority 18
40
35
0
45
30
25
20
15
10
5
Portfolio Performance Review: Marketable Securities
In the 7 month period following June 2013, LIA and LTP marketable securities increased by a CAGR of 3% to reach ~ USD 40BN in January 2014
Source: Oliver Wyman analysis, MI report for June 2013, December 2013, and January 2014
+3%
Jan-14
39.8
3.0
6.4
10.1
20.2
Dec-13
40.5
3.0
6.7
10.6
20.2
Fixed Income
Equity
Cash
Jun-13
38.5
3.4
6.6
8.9
19.7
Alternatives
LIA and LTP marketable securities By asset class in $BN
• $1.3BN growth from June 2013 to January 2014 (3% CAGR)
• Growth is driven mainly by fair value increase of 14% in equities
• Fixed Income decreased by 3%, mainly due to 9 LIA bonds that matured throughout the period – Market value of LIA bonds at expiry was ~
$256MM – Matured fixed income portfolios
contributed to cash increase – Market value of remaining fixed income
increased over the period (from $6.33MM to $6.40MM)
• LIA subsidiary investments in marketable securities (LAFICO, LAP and LLIDF) have been excluded in the performance review
Note: Cash represents LIA’s position only