Back inside the horrors of the Gaddafi fund [updated] | FT Alphaville

Back inside the horrors of the Gaddafi fund [updated]

Another FT story on the swingeing losses incurred by Libya’s sovereign wealth fund under the Gaddafi regime — based on another leak to Global Witness.

Click the image for the full document:

As ever with the workings of the Libyan Investment Authority, it’s a most enlightening read.

The Telegraph has spotted details oF the deposits the LIA held at HSBC, which were indeed sizeable (see chart to the right) but not wholly surprising given the prevalence of cash in the fund’s assets, we think. The cash had to go somewhere.

Instead it really is the LIA’s losses on investments in alternatives and derivative assets, including the gigantic fees it paid out for the privilege, that stick out once again.

Especially because we now have the LIA’s own words on the matter:

The Alternative investment department currently has under management $4.5bn (35.9% current allocation), under the advice of KPMG it is recommended that the department reduce its position by $2.4bn, to bring it into line with 11% asset allocation weighting…

Just a small portfolio shift then!

Let’s start with investments with BNP Paribas:

Credit Suisse:

And Permal (brokered by Société Générale):

Note the heavy emphasis throughout on fees taking a large share of losses.

Update (11.15am London time): Oops, we really should have mentioned Palladyne, a Netherlands-based fund which also lost the LIA money, to the tune of $30m. Speaking of high fees… they accounted for 69 per cent of those losses. Amazingly enough 45 per cent of the assets were held in cash:

The fund’s dissection of its trades with Millennium Global (a small hedge fund) also warrants close reading. (Update — we say small, though the FT’s hedge fund correspondent and former Alphavillain Sam Jones notes they have $12bn AUM…) This is not how SWFs normally invest in alternative assets, or indeed how they select and evaluate fund managers, at least from the portfolios we’re familiar with.

We expect we’ll get another round of comments insisting that these alternatives investments were all completely normal — much as Goldman offering preferred shares in itself to LIA to cover losses was oh, so very completely normal — while volatility was only to be expected. It’s standard asset allocation for SWFs, really.

Sorry, we’re not buying it.

Neither, it seems, did the LIA itself.

Related links:
What horrors lie inside the Gaddafi fund – FT Alphaville
Designing a SWF portfolio – Oxford SWF Project (compare and contrast)