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“Deep Thoughts by Alexander Mirtchev” – Oxford SWF Project’s Ashby Monk comments on G20 Magazine publication

by Ashby Monk

For a variety of reasons, SWF employees are typically quite reserved and guarded when speaking to the press. Not so for Dr. Alexander Mirtchev, who is the Independent Director and a member of the Board of Directors of Kazakhstan’s $30 billion National Welfare Fund Samruk-Kazyna. Mirtchev has given quite a compelling interview to G20 magazine (you can go directly to the interview here), and his candor and thoughtfulness sets him apart from his peers. Accordingly, I thought I’d do another ‘deep thoughts by…’ post, which is now becoming a regular segment (see here, here, here and here). Anyway, I want to highlight Mirtchev’s thoughts on investment strategy and risk management, which I found rather interesting:

“In the wake of the global crisis, SWFs have become more active. They have intensified the search for investment projects, and the period of “withdraw and regroup” could be considered at an end.”

“…SWFs are often perceived to be driven by political, rather than economic, considerations. At the end of the day, they often are, which is only natural, as their shareholders are governments.”

“It is likely that we will see SWFs taking key industries in relatively small emerging markets.”

“…the long-term or broader view on returns and risks that they take is creating the impression of an agenda, different from that of other investment vehicles and organizations. Yet, at the end of the day, the investment decisions and abilities of SWFs depend on the specifics, nature and size of their holdings in particular regions. Some assets are deemed strategic, others–temporary, or a building block in a long-term approach.”

“…SWFs have a broader take on investment risks, due to their more long term vision and approach, and are gradually becoming more focused on realising new opportunities in asset-backed or more traditional sectors in less developed markets, such as the example of recent mining investments by SWFs in Zambia, Uganda and Liberia, or, at the other end of the spectrum, the recent investment by Diar (Qatar) in a resort in the Seychelles.”

“…SWFs tend to be in a stronger position than other investment companies to withstand the pressure of market fluctuations and “stick” with a specific investment. Size and sovereign support can get you only so far, and the market pressure will eventually tell, so success for SWFs would often depend on whether or not they are aware of the market trends and comply with market realities.”

“According to Ashby Monk of the Oxford SWF Project, ‘these funds… have intergenerational time horizons that grant them a unique ability to consider risk factors not priced in today’s short-term markets (but which will no doubt be priced in the long- term)’.”

I was with him right until he quoted that snooze-inducing Monk guy, but let’s not hold that against him. The interview is worth a read. Mirtchev offers some rare insights into some of the considerations facing SWF executives.