Managing the Petroleum Fund
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public support for the wise management of petroleum revenues and reduces the risk of bad governance. Transparency ensures that information can be used to measure
the authorities performance and also guards against any possible misuse of powers. O e of the fu da e tal ele e ts of the Fu d’s go e a e st u tu e is that o o e
person or institution is responsible for making and implementing investment decisions because each party is formally accountable to another for their role in the
decision-making process. This degree of transparency serves to encourage consensus and enable accountability, which means authorities and whoever handles public
money can be held responsible for their actions.
As the Executive, the Government through the Ministry of Finance is responsible for the overall management of the Petroleum Fund, on behalf of the people of Timor-
Leste. The Petroleum Fund Law makes the Government accountable to Parliament through various reporting requirements. The operational management is carried out
the Ce t al Ba k, hi h i ests the Fu d’s apital a o di g to guideli es established by the Ministry of Finance and mandates developed by the Investment
Advisory Board IAB. The Ministry of Finance is required to seek advice from the IAB before making decisions on any matter relating to the investment strategy or
management of the Petroleum Fund.
Petroleum Fund Investment Policy The evolut
io of the Pet oleu Fu d’s i est e ts is des i ed i the Pet oleu Fu d A ual Repo t fo
. The Fu d’s e uit allo atio has i eased to i order to meet the 3 real return objective with a reasonable probability over the
long run. The higher allocation to the more volatile asset class of listed equities will involve more short-term fluctuations in the Fund´s investment returns. Modelling of
the 40 equity allocation helps put this risk in context:
x The Fund is expected to experience a loss in one out of every five years. x In the worst 5 years out of every 100, the loss will be 5.2 percent or higher.
Based on a fund balance of 16.9 billion, this represents a loss of US877 million.
While there will invariably be years where the Petroleum Fund posts losses, this short-term volatility in returns is integral to the asset allocation that allows us to
meet our long-term return objective.
Table 2.6.3.3.1 shows the Petroleum Fund portfolio and manager structure as of June 2015. Diversification is a key
p i iple u de l i g the Fu d’s i est e t
accountability arrangements as well as the conduct of investment practices by Sovereign Wealth Funds SWFs on a prudent and sound basis.
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strategy and helps to reduce volatility and remove unrewarded risks. The Fund diversifies across asset classes, securities, regions and currencies.
The Government is currently exploring ways to further diversify and enhance the equity and bond portfolios to improve its risk-return profile. The evolving investment
allocation involves a sound and responsible process. Significant work is undertaken to fully understand the characteristics and risk of potential new investments, their
implementation and their complexity relative to the available governance resources. Table 2.6.3.3.1: Petroleum Fund Portfolio and Managers Structure
Number Managers and Mandates, as of August 2015
Weight Market Values,
millions Return
since inceptio
n Total Petroleum Fund Portfolio
100.0 16,650