REUTERS SUMMIT-Angolan wealth fund buys fixed income but no project investments yet

Wed Apr 9, 2014 11:16am EDT

(Refiled to change story label used by some subscribers)

* Angola's $5 bln sovereign fund is second-biggest in region

* Chairman says to start investing in non-oil growth sectors

* Rejects IMF call for quarterly reports to parliament

By Shrikesh Laxmidas

LUANDA, April 9 (Reuters) - Angola's $5 billion sovereign wealth fund, sub-Saharan Africa's second-biggest, has this year made its first investments by buying fixed income securities but is yet to start financing infrastructure projects, its chairman said.

Africa's biggest oil producing nation after Nigeria set up the FSDEA fund in 2012 to invest foreign exchange reserves and finance economic diversification and infrastructure but it has been criticised for making a slow start.

The fund is smaller than Botswana's $6.8 billion Pula Fund but is likely to become sub-Saharan Africa's largest shortly due to top-ups estimated at $3.5 billion per year.

Jose Filomeno dos Santos, the eldest son of long-serving President Jose Eduardo dos Santos, told the Reuters Africa Summit the fund would now push on and with making investments in the coming months.

"Since the start of the year the FSDEA has been gradually developing its portfolio through investments in high-grade fixed income securities but it has not committed to any direct investments yet," he said.

But the fund will start investing in agriculture, mining, infrastructure and hospitality projects soon, he added, without giving details.

The FSDEA plans to invest half its endowment in these sectors, in Angola and nearby countries to benefit from strong regional economic growth.

Angola has grown rapidly since the end of a 27-year civil war in 2002 but its economy is still heavily reliant on oil, which brings in over 95 percent of export revenues.

Dos Santos said the investments would be made by establishing dedicated private equity funds.

"The rationale behind these special purpose vehicles is that they limit the portfolio's risk exposure," he said.

"The FSDEA may invest in commercial infrastructure projects, ideally by taking a minority equity stake or by acquiring secured debt instruments issued by the venture," he added.

DEFENDS TRANSPARENCY RECORD

The other half of the endowment will be invested in "high quality cash and fixed income securities (and) global equities around the globe to mitigate domestic and regional-specific risks".

The FSDEA has also been accused of falling short on transparency, on which Angola has a woeful record.

The IMF last month said FSDEA quarterly reports to parliament could improve transparency and its funding should be part of the regular budgeting process.

However, Dos Santos said the FSDEA already submitted detailed quarterly reports to the Ministry of Finance and that all the accounts were independently audited before being included in state accounts submitted to parliament.

He said this type of process is used by the largest sovereign wealth funds in the world.

Angola has $30 billion in foreign exchange reserves.

Dos Santos's appointment last year raised concerns about nepotism, with critics viewing it as a step towards the 36-year old replacing his father, who has been in power since 1979.

The younger Dos Santos has dismissed the criticism, pointing to his experience as the founder of an investment bank in 2008.

Asked why the fund had been slow in starting-up, he said it had spent time on legal, reporting and other strategic matters.

"Establishing a $5 billion sovereign wealth fund requires this type of regulatory work before any actual investments are deployed," he said.

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(For more summit stories, see ) (Reporting by Shrikesh Laxmidas; Editing by Ed Cropley and Greg Mahlich)

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