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Secretive Libya wealth fund vital for reconstruction

Secretive Libya wealth fund vital for reconstruction

As the Libyan crisis shows no signs of abating, we look at whether the country has the resources to recover beyond the upheaval.

February 23, 2011 1:42 by

Libya’s secretive sovereign wealth fund could hold the key to any post-conflict reconstruction and future economic development with its $70 billion in assets including lucrative stakes in Western firms.

Given escalating unrest in Libya, a possible end to Muammar Gaddafi’s 41-year rule is likely to shake the foundations of the politically driven fund, but any new government could put the cash to good use and manage the fund more efficiently.

Libyan Investment Authority, set up in 2006 to manage the country’s oil revenues, has assets of around $70 billion, equivalent to nearly 75 percent of the country’s economy.

It owns stakes in a clutch of European bluechips ranging from Italian bank UniCredit to British publisher Pearson.

LIA, which is roughly the same size as Qatar’s sovereign wealth fund, publishes little information — its website is still under construction — but a rare annual report in 2009 shows how liquid the fund is.

It had more than 78 percent in “short-term financial instruments abroad” and had only $8 billion in long-term equity investments in North Africa, Asia and Europe.

“If we say it’s economics that drives a lot of the Libyan anger and in the next 2-3 years there may be a democratic transition, we will see the usage of assets that have been accumulated by the current regime, including LIA,” said Sven Behrendt, an SWF analyst and managing director of Geneva-based consultancy Geoeconomica.

“If you have so much money to consume, then it could be that any incoming government which wants to boost popularity might want to tap it. That’s a legitimate and obvious conclusion.”

Thomson Reuters data shows LIA has $1.5 billion in publicly listed equities, largely invested in banking, aerospace and defence, media and oil sectors in Europe.

LIA returned profits of $2.37 billion between 2006 and early 2009, or nearly 6 percent on initial capital of $40 billion.

This looks good in comparison with Norway’s SWF, for example, which lost of 2.9 percent in 2007 and more than 23 percent in 2008 when the credit crisis hit global financial markets.

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