December 17, 2009 / 11:06 AM / 9 years ago

UPDATE 1-East Timor wealth fund to diversify from US bonds

* Govt plans to diversify 10 pct of fund

* Considering changing law requiring 90 pct in US bonds

* Looking at other govt bonds and property, not stocks (Updates with details, quotes)

By Nopporn Wong-Anan

SINGAPORE, Dec 17 (Reuters) - East Timor said on Thursday its $5 billion sovereign wealth fund plans to diversify away from U.S. Treasuries and invest in other government bonds as well as property.

The government is considering changing a law that requires 90 percent of the assets of the Petroleum Fund to be invested in U.S. Treasuries, which currently make up all of the fund.

“Our savings entrusted to the U.S. Treasury could be literally wiped out, throwing our people into even greater poverty and desperation,” said President Jose Ramos-Horta in a speech in Singapore, pointing to the growing U.S. deficit and weakening U.S. dollar as reasons for the move.

The U.S. dollar has picked up this month against a basket of currencies .DXY, after hitting a 14-month low that focused attention on the possibility of a long-term weakening of the dollar’s status as the world’s top reserve currency.

For the 10 percent that can be invested in other assets, Ramos-Horta said the fund was seeking fund managers to help invest the money in eurobonds, Australian and Japanese bonds.

“We should have done this five years ago,” he said in response to a Reuters question. “It doesn’t mean we walk away from U.S. bonds,” he added.

He said the fund would not gamble on equities, but would look to buy property in various cities, which could be used for embassies.

Tiny East Timor, also known as Timor Leste, a former Portuguese colony that achieved independence from Indonesia in 2002, is one of Asia’s poorest countries but has enormous oil and gas resources.

Royalties from oil and gas production are collected in the Petroleum Fund, and are partly being used to help fund basic infrastructure such as roads. [ID:nJAK484136].

Sovereign wealth funds around the world, which manage an estimated $3 trillion, are emerging warily from the credit crisis, when they helped shore up home markets after high profile investments in Western banking. [ID:nL236030]

Norway’s wealth fund, which also invests oil and gas revenues and manages about $455 billion in assets, told Reuters last month it was cautious on equities and diversifying into property [ID:nSIN92794]. (Writing by Neil Chatterjee; Editing by Kevin Lim)

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