APA-Economics presents an interview with Israfil Mammadov, Executive Director of the State Oil Fund of Azerbaijan (SOFAZ), regarding the Fund’s activities in 2025:
- Mr. Israfil, unlike previous periods, this year has been a more successful year for the Fund in terms of investments. The Fund maximized its investments in gold, and against the backdrop of rising prices, there was an increase of around USD 10 billion in assets. Even experts who are always known for their critical stance acknowledge that the Fund’s actions have been successful. Overall, amid declining oil revenues, how do you assess 2025 from an investment perspective?
- Yesterday, we celebrated the 26th anniversary of the establishment of the State Oil Fund. Established under the leadership of the Great Leader Heydar Aliyev at the initiative of President Ilham Aliyev, the Oil Fund continues its activities, remaining committed to its mission of efficient management of national wealth, strengthening the country’s economic resilience, and ensuring the welfare of future generations.
Commitment to this strategic mission is also reflected in the results of the Fund’s investment activities and financial indicators. It should be noted that over the past three years, by the end of the third quarter of this year, the Fund’s investment income exceeded USD 10 billion. During the same period, as a result of fund management activities, taking into account not only investment income but also the increase in gold prices and changes in currency exchange rates, the Fund recorded total revenues of USD 21 billion, as a result, SOFAZ's reserves increased by 43%. The recent dynamics have continued, and 2025 has also been one of the successful years for the Fund in terms of investment income. Specifically, SOFAZ’s assets, which amounted to USD 60 billion at the beginning of the current year, increased to USD 70.2 billion over the nine months of the year.
These positive results can be considered the practical outcome of the investment strategy and portfolio approach consistently implemented by the Fund over many years. For years, SOFAZ has been shaping its investment portfolio based not on short-term results but on the principle of long-term balance and sustainability. This approach, while preserving the existing investment mandate, also implies building a balanced portfolio that takes into account the Fund’s future obligations and strategic objectives. On this basis, the Fund’s portfolio diversification strategy has been gradually implemented since 2012. Since that time, the share of financial instruments in the portfolio with higher income potential, but considered relatively risky, has been gradually increased. Short-term results in financial markets can be volatile, but it is precisely such a balanced portfolio structure that allows the Fund to achieve more sustainable results in the long term. Overall, most institutional investors assess the results of investment activities not based on short-term annual indicators but primarily over the medium and long term. This approach allows for a more objective evaluation of the portfolio’s risk-return profile, strategic asset allocation, and short-term market fluctuations.
Regarding strategic gold reserves, within the framework of the aforementioned diversification strategy, the share of gold in the portfolio has been gradually increased since 2012. In 2025, amid continued uncertainties in the global economy, the Fund continued its gold investments in line with this strategy. As a result, during the nine months of 2025, the increase in the value of gold assets generated non-budgetary revenue of USD 6.8 billion for the Fund.
As you noted, in addition to oil revenues, additional foreign currency income from investment activities has begun to play an increasingly important role in recent years. As the Fund’s assets grow and the portfolio structure is continuously optimized, investment income contributes significantly both to ensuring fiscal sustainability and to achieving the Fund’s long-term objectives.
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- While rising prices of the non-ferrous metal have a positive impact on the Fund’s assets, at the same time, price declines creating additional risk are also a concern. Overall, what are the Fund’s forecasts regarding the price of gold, and what measures are being taken or planned taking into account the mentioned risks?
-For SOFAZ, the essence of investing in gold requires a different approach than classic investment instruments. The Fund considers gold not as an asset aimed at generating short-term returns, but as part of the country’s strategic financial reserves. This approach is also widely applied in international practice, and its main purpose is to strengthen the overall portfolio’s resilience and the country’s financial security during periods of increased uncertainty in the financial system.
In recent years, the increase in gold reserves has been a tendency observed globally. This approach is particularly related to intensified external shocks, increased volatility in financial markets, geopolitical risks, and instability in currency markets. In this context, gold acts as a strategic asset that is not dependent on issuers, relatively free from interest rate and counterparty risks, and allows for the preservation of value during periods of financial stress. Within this framework, by the end of the third quarter of 2025, the volume of gold assets amounted to 185 tons, valued at USD 23 billion, generating non-budgetary revenue of USD 11 billion for the Fund since 2012. While changes in the market price of gold are reflected in the value of the Fund’s overall assets, these changes are not accounted as income for a separate asset class in calculating the profitability of an investment portfolio; rather, they are considered as changes in the value of reserves due to exchange rate fluctuations, in line with the practice of many institutional investors.
Regarding expectations for the price of gold, the main influencing factors will be the dynamics of real interest rates, the value of the US dollar, conducted monetary policies, as well as the potential future developments of geopolitical tensions, which currently have the strongest impact on gold prices.
- Recently, the Fund’s investments in global IT giants have attracted particular public interest. Some see this both as a successful investment and as a prestige for the country. How do you evaluate these investments? For example, how profitable are the investments in the shares of companies such as Amazon, NVIDIA, META, and Tesla, and are you satisfied with them?
- SOFAZ, by having a diversified investment portfolio, makes investments in different sectors through various types of assets. In managing the equity sub-portfolio, the Fund tracks the global equity market index “MSCI World” as a benchmark, which includes shares of 1,320 companies across 11 sectors in 23 developed countries, including the aforementioned IT giants. In other words, investments in technology companies such as Amazon, NVIDIA, Meta, and Tesla are carried out not based on an individual stock selection approach by SOFAZ, but within the framework of an institutional investment strategy based on broad indices reflecting global equity markets. The technology sector has become an important component of the global economy in recent years, and long-term trends such as digitalization, artificial intelligence, and cloud technologies have led to an increased weighting of these companies in the indices.
It should be noted that as a result of the chosen strategy, SOFAZ has achieved a 314% return since the inception of the equity indices, which corresponds to an annual return of 11.5% (as of September 30, 2025).
-Mr. Israfil, one of the main issues currently is the Fund’s oil revenues amid declining prices. We would like to know what SOFAZ’s market analyses and expectations are under optimistic and pessimistic scenarios regarding oil prices in this context. In such a situation, through which investment instruments can the Fund offset the declining oil revenues?
The Fund’s budget for the next year is prepared in close coordination with the state budget, and assumptions regarding oil prices are based on the medium-term forecasts of international organizations. Within the framework of the consolidated budget, when forming the state budget’s revenues and expenditures, maintaining SOFAZ’s budget indicators and the sustainability of its assets are considered among the main priorities. For information, the Fund's budget for 2026 assumes the price of crude oil at $65, as in the state budget, based on forecasts from international organizations.
Overall, potential changes in oil prices during the year and the resulting possibility of revenue declines are taken into account in advance in the Fund’s planning and risk management mechanisms. At the same time, the role of income from investment activities increases in mitigating the impact of possible decreases in oil revenues. When forming its diversified investment strategy, SOFAZ considers the risks and uncertainties related to the future trajectory of the oil and gas sector, and decisions in portfolio management are based not on a single indicator but on a comprehensive model and prudent assumptions.
In addition, SOFAZ pays special attention to maintaining an appropriate level of liquidity in the portfolio to ensure the execution of its budget obligations. The role of liquid assets, including bonds and money market instruments, in the portfolio is one of the key factors that provides fiscal flexibility during such periods.
- Recently, an interesting approach has been observed in SOFAZ’s investment policy. The Fund has increased its interest in infrastructure projects. For example, a private school project in the UAE, a railway company in Italy, an airport in London, and, in addition, stakes in companies making private investments have been acquired. What is this interest related to, and what are your expectations regarding profitability? Additionally, are any similar investments planned for the upcoming period?
As a long-term investor, SOFAZ builds its strategic asset allocation and portfolio optimization based on multi-year objectives. As noted, within the framework of the diversification strategy that began since 2012, the Fund’s investment portfolio has also included alternative investments such as private equity, real estate, and infrastructure. The mentioned investments have been directed to various economic sectors in many countries around the world, primarily in developed countries, and have become an important component of the Fund’s long-term investment strategy. These assets not only contribute to optimizing the portfolio’s risk-return balance but also enhance resilience against market volatility. At the same time, I would like to say that the investment strategy is a dynamic process, and the Fund regularly reassesses its strategic framework in light of structural changes in the market environment, risk conditions, liquidity requirements, cost-to-entry ratios, and expected returns.
The Fund’s investments in Italy’s “Italo” high-speed rail operator, “Enfinity Global” solar power plants, and Gatwick Airport in London are a manifestation of this strategy. These investments complement the overall strategy of the portfolio, deepen diversification, and allow for ensuring sustainable profitability in the long term while taking risks into account.
SOFAZ, while carrying out such investments in cooperation with experienced international partners, also makes extensive use of independent and comprehensive evaluation mechanisms based on its internal expertise and competence in investment decision-making. Specifically, each investment decision in private equity, real estate, and infrastructure assets is based on detailed analyses covering investment, risk, legal, and compliance assessments. The Fund consistently places high importance on enhancing the quality of investment decisions and, within this framework, conducts meetings and consultations with technical and sector-specialized experts in the relevant fields. In line with the current approach, SOFAZ plans to carefully consider opportunities in alternative investments within the framework of its investment strategy in the upcoming periods.
- In the medium term, a gradual reduction of transfers from the State Oil Fund to the state budget is envisaged. It is projected to decrease from AZN 14.5 billion in 2025 to AZN 10.2 billion in 2029. How could this step affect the Fund’s asset size and profitability in the medium term?
The volume of transfers to the state budget plays an important role in ensuring macroeconomic stability in the country, as well as in fulfilling the Fund’s savings function. On this basis, the funds accumulated in SOFAZ provide the government with the ability to maintain expenditures and support the economy during future economic difficulties or unexpected shocks. Within the framework of ongoing reforms in the country, the gradual reduction of transfers from the State Oil Fund to the state budget in the medium term is considered part of measures aimed at strengthening the long-term sustainability of the government’s fiscal policy and serves the more effective implementation of the Fund’s long-term mandate. This approach not only increases flexibility in managing the Fund’s assets but also creates additional maneuvering space to consider more structured investment opportunities in global markets. As a result of optimizing transfers, it becomes possible to more efficiently balance the Fund’s portfolio liquidity requirements with long-term investment objectives, which facilitates more effective risk management.
- Mr. Israfil, information regarding currency auctions is now released on a quarterly basis. Therefore, questions arise on this issue. We would like to know whether the Fund has carried out any dollar sales this year in addition to transfers to the budget?
- One of the main functions of the State Oil Fund is to support macroeconomic stability through the execution of budgetary obligations. For many years, the State Oil Fund has been carrying out its activities in line with the country's overall fiscal and monetary policy framework while fulfilling its obligations. In this regard, our approach to the disclosure of information and the form of communication is also implemented in accordance with this framework.
The communication of currency auctions for SOFAZ is a technical adjustment that is part of the country’s overall economic management mechanism. As in all its activities, the Fund takes into account market sensitivity, the objectives of monetary policy, and long-term stability priorities in this matter. In addition, in accordance with the Fund’s Information Policy, detailed information on its activities, including the structure of the investment portfolio, new investments, sources of income, and expenditure obligations, is regularly disclosed to the public.
For the current year, a total of AZN 14.6 billion is planned to be utilized within the framework of the Fund’s approved budget expenditures. Accordingly, by the end of the third quarter of 2025, the Fund has executed obligations totaling AZN 10.9 billion in manat terms for overall expenditures, and the continuation of fulfilling budgetary obligations is planned until the end of the year.
- SOFAZ has financed a number of nationally significant projects to date. Are there any additional requests in this regard?
- The Fund has ensured the financing of the most important nationwide projects that serve the country’s socio-economic progress for the needs of current generations. Based on the Fund’s financial resources, the improvement of the social and living conditions of refugees and internally displaced persons, the construction and reconstruction of strategically important infrastructure projects, the development of international energy and transport corridors, as well as financing large-scale projects in water supply and irrigation systems have been successfully completed. In addition, in line with the concept of “turning black gold into human capital,” the Fund’s financing of a number of state programs in the field of education has made a significant strategic contribution to the formation of highly qualified personnel and the development of the country’s human capital.
Regarding the financing of new projects, we would like to note that the use of the Fund’s resources is carried out in accordance with the main directions - the program - approved for each year by the orders of the President of the Republic of Azerbaijan. Within this framework, the Fund’s resources are used to address the most important nationwide issues for the country’s socio-economic development and to finance strategically significant infrastructure projects. On this basis, in the Fund’s draft budget for 2026, it is planned to add two new expenditure items: additional measures to strengthen the potential of the vocational education system in accordance with order by the Presidentof the Republic of Azerbaijan dated December 5, 2025, and the financing of international dual-degree programs based on the order dated July 22, 2025.
- What are your expectations regarding the size of SOFAZ’s assets and the profitability of its investment portfolio by the end of this year?
- SOFAZ is a global investor, and therefore any changes in global financial markets have a certain impact on the dynamics of the Fund’s assets. Interest rate levels in capital markets, changes in the prices of equities, real estate, and infrastructure, exchange rate fluctuations in currency markets, as well as price trends of oil and gold in commodity markets, are the main factors affecting the profitability of the Fund’s investment portfolio and, consequently, the overall size of its assets. For your information, we would like to inform you that as of the end of September the current year, SOFAZ's assets amounted to 70.2 billion US dollars, and investment income from asset management amounted to 3.1 billion US dollars. We also observe that positive tendency in the Fund’s financial indicators have continued during the last quarter.
- What will be the strategic objectives of the Fund for 2026?
- The Fund’s strategic objectives for 2026, based on its existing long-term mandate, will cover on the preservation of assets, ensuring sustainable investment profitability, and adapting the portfolio to changing global economic and financial conditions. Within this framework, increasing the flexibility of the investment strategy and more effective risk management are among the Fund’s main priorities.
At the same time, in 2026, the Fund aims to continue contributing to fiscal stability, executing transfers to the state budget in line with the country’s long-term socio-economic development goals, and financing priority projects within the Fund’s budget.
Strengthening institutional building forms the foundation for the Fund’s long-term and sustainable operations. In this direction, improving corporate governance standards, risk management, compliance, developing internal control and reporting mechanisms in line with international best practices remain a priority. At the same time, the development of SOFAZ’s human capital—preserving professional talent and continuously enhancing employees’ knowledge and skills—serves to increase the Fund’s operational efficiency.
In a context of ongoing uncertainties, the Fund's main goal is to maintain a risk-return balance, explore new investment opportunities in selected areas, taking into account existing priorities, and increase reserves in the long term. In this regard, developing international partnerships and expanding strategic investments occupy an important place among the Fund’s main priorities. Collaboration with reputable institutional investors and leading financial institutions expands access to new geographies and markets, along with investments that create long-term value.
Photo - Rufat Mustafayev ©️ APA GROUP
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