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Libyan wealth fund to appoint investment managers

The Libyan Investment Authority plans to outsource its investment management, expand in London and implement international standards of governance, as it seeks to move beyond allegations of past mismanagement, cronyism and failed investments.

“LIA will no longer manage investments as it did in the past — we will manage external managers”, Abdulmagid Breish, the chairman of the Libyan Investment Authority told the Financial Times in an interview today.

As part of its restructuring plans, the LIA wants to expand its operations in London, where is already owns a valuable commercial property portfolio. “[London] will be a centre of excellence where a lot of the analytics, a lot of the research and the management of external managers will be handled,” Breish said.

“We will have to prepare our risk profile and allocation,” he added. “Once that is done, we will identify which best in class fund managers will be suitable”.

Breish, a former banker at Arab Banking Corporation, took over the reins of the ailing Libyan sovereign wealth fund last year and continued previous efforts to restructure what was previously one of the world’s most opaque state investment vehicles.

After the fall of the Gaddafi regime nearly three years ago, the LIA began to take stock of its portfolio of holdings. According to a recent valuation by Deloitte cited by Breish, the LIA is now worth $66 billion. It still owns some 550 companies and direct investments in North Africa, the Middle East and Europe — some of which it intends to wind up.

Most of LIA’s assets remain frozen. Nonetheless, Breish says, the LIA is already being courted by international financial organisations looking to pitch their business.

“We’ve had many different financial institutions pitching for the past three months,” he said. “We’ve been telling them we’re not ready, we’re building restructuring and enhancing our capabilities and when we’re ready we can engage.”

The LIA also plans to establish a “future generations fund”, to be replenished through oil income, and a “budget stabilisation fund”, from which the Libyan government could borrow if it has a budget deficit.

This overhaul of investment strategy and governance is being carried in tandem with a quest to recover some of the massive losses the LIA suffered on investments with some of the world’s biggest banks, before the Libyan revolution.

After its inception in 2006, the LIA sought investment opportunities for Libya’s oil wealth. By 2010, it had built a cash-heavy portfolio, which also featured equity stakes in companies such as Italy’s UniCredit bank and Pearson, owner of the Financial Times, in which it still has a 2.98 per cent shareholding.

However, the fund also entered into a series of risky derivative transactions which led to billion-dollar losses, some of which the LIA is now looking to recover through the courts. In January this year, the LIA sued Goldman Sachs over derivative trades in excess of $1 billion. In March it filed a $1.5 billion claim against Societe Generale accusing the French bank of helping to funnel bribes worth tens of millions of dollars to close associates of Saif Al-Islam, the son of former Libyan leader Muammar Gaddafi.

Both banks deny the claims made against them, and Goldman Sachs has applied for summary judgement on its case.

In addition, the LIA is considering taking action to recover $700m it invested in Netherlands-based Palladyne International Asset Management and to investigate several other smaller transactions.

Palladyne International Asset management, which is led by Ismael Abudher, the son-in-law of Libya’s former oil minister, is accused in a separate lawsuit filed by a previous employee in the United Staes of serving as a “kickback and money laundering operation” for the former Libyan regime.

Palladyne could not be reached for comment, but had previously referred to the allegations as ‘untrue and ludicrous’.

Steering the LIA in post-Gaddafi years has not been plain sailing. “We were starting form zero” Breish said. “ The LIA was an institution that’s been left to rot”.

Breisch’s predecessor, Mohsen Derregia, was ousted in February last year, and blamed interference from well-connected individuals and entrenched interests for his dismissal.

“I am not inhibited by pressure by any party,” Breish said. “This does not mean that there isn’t pressure. You see this coming from certain quarters who are anxious about their future or are anxious about uncovering certain things that may pertain to them.”

However, he remains positive for the future of the LIA. “I will put into LIA whatever is best practice and what international sovereign wealth funds do.”