Alarm In Kazakhstan About The Health Of The Country’s Sovereign-wealth Fund

Kazakh National Bank Publishes The Preliminary Results Of Balance Of Payments For The 4th Quarter And For The Entire 2016

The government is trying to address issues with its sovereign-wealth fund raised by a former central-bank employee, the WSJ reported.

In the depths of a currency crisis in November 2015, an executive within Kazakhstan’s central bank laid out a plan aimed at boosting the country’s sovereign-wealth fund.

Kazakhstan’s central bank had spent almost $40 billion of reserves between 2014 and 2015 trying to defend the declining currency, according to the bank. Plummeting oil prices led to a 47% depreciation of Kazakhstan’s currency between June 2014 and April 2016.

Meanwhile, the wealth fund, called the National Fund and managed by the central bank, was mostly invested in bonds—holdings that weren’t generating enough income to make up for money withdrawn by the government.

Berik Otemurat led a unit of the central bank that was experimenting with investments in private equity and hedge funds. According to Mr. Otemurat, in that November 2015 meeting with Daniyar Akishev, the new central-bank chief, he proposed investing more of the National Fund’s money in stocks and starting investments in private equity, hedge funds and real estate.

With oil prices falling, he argued, the country couldn’t afford to keep 86% of the National Fund in bonds, according to a copy of Mr. Otemurat’s report, which was reviewed by The Wall Street Journal.

As the meeting ended, Mr. Otemurat said, Mr. Akishev told him that he would be replaced. Mr. Otemurat said Mr. Akishev didn’t address his concerns about the fund.

Mr. Akishev declined to comment.

“We are eating up the National Fund,” Mr. Otemurat told The Journal in January. “The money we have been lucky to accumulate is the only money we have to capitalize on.”

Kairat Kelimbetov, the former central-bank governor who hired Mr. Otemurat, said he is unhappy that his former employee spoke in public. He says the question of whether to invest National Fund money in riskier assets so it earns more money to compensate for government spending is an important issue.

In November, the Kazakh government published a draft decree, which echoes the ideas presented by Mr. Otemurat, and proposes a new investment strategy for the fund. The amount of fund money invested in bonds in the main part of the fund intended for long-term savings would fall to 60% from 80%, while 35% would be invested in equities and 5% in alternative assets such as private equity and hedge funds to “improve the long-term expected returns,” according to the draft.

On Dec. 22, an official at the central bank said that the president has signed the new decree.

Mr. Otemurat said in a recent interview that he won’t return to work in the public sector. “I am moving on,” he said.

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