State Oil Fund of the Republic of Azerbaijan (SOFAZ)

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Updated May 27, 2023
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State Oil Fund of the Republic of Azerbaijan (SOFAZ)

Investopedia / Michela Buttignol

What Is the State Oil Fund of the Republic of Azerbaijan (SOFAZ)?

The State Oil Fund of the Republic of Azerbaijan (SOFAZ) is a sovereign wealth fund (SWF) established by the Republic of Azerbaijan. The fund was launched in Dec. 1999 after the president signed a decree.

The fund, which invests the country's oil and gas revenues for future generations, is overseen by a special board that is led by the country's president. As of April 2023, the fund had about $53.4 billion in assets.

Key Takeaways

  • The State Oil Fund of Azerbaijan is a sovereign wealth fund established by the government of Azerbaijan.
  • It manages oil and gas agreements within the nation and those who purchase resources.
  • The fund invests in various asset classes throughout the world to multiply wealth derived from oil.
  • The sovereign wealth fund makes mostly conservative fixed-income and money-market investments and also diversifies its holdings to include gold, real estate, and equities.
  • The majority of the fund's holdings are allocated to Europe, Asia, and North America.

Understanding the State Oil Fund of the Republic of Azerbaijan (SOFAZ)

The State Oil Fund of the Republic of Azerbaijan was established on Dec. 29, 1999, by President Heydar Aliyev. It is the result of a national oil and gas strategy put in place by the national leader in 1994. The fund, which is based in Baku, Azerbaijan, sees its source of deposits as primarily surplus revenues from the development of the country's oil and gas reserves.

According to the fund's website, its main objectives are to:

  • Preserve the nation's economy, remain disciplined on a fiscal-tax basis, cut back the country's dependence on energy revenues, and stimulate other sectors in the economy
  • Manage and distribute the country's oil wealth equally, as well as preserve revenues from energy sources for future generations
  • Use the fund to finance large projects to benefit the nation

As of April 2023, the fund had $53.4 billion in assets, which are invested in a number of asset classes. The aim is to maximize its long-term returns.

The most recent breakdown of the fund's portfolio is as follows:

Europe and Asia constituted almost 53% of the oil fund's holdings by the end of 2020. The fund also reported about 25% of its investments in North America, 1.1% in the Middle East, and 1.16% in Australia. Only 0.04% of its investments were fixed in South America.

Although this sovereign wealth fund is ultimately accountable to Azerbaijan's president, it is directly overseen by the supervisory board. This entity is made up of government bodies and public organizations, including the prime minister and the chair of the country's central bank. The fund's day-to-day operations and management, along with any decision-making is the responsibility of the executive director, who is appointed by the country's president.

As of 2023, the China Investment Corporation is the largest sovereign wealth fund in the world with more than $1.35 trillion in assets, followed by Norges Bank Investment Management, Norway's sovereign wealth fund, with $1.15 trillion in assets.

Special Considerations

According to the fund's annual report, oil production accounted for 29.9% of Azerbaijan's gross domestic product (GDP) compared to 70.1% from non-oil-related sectors. This highlights Azerbaijan's reliance on oil production as a source of prosperity.

In order to help diversify the Azerbaijani economy, the primary purpose of SOFAZ is to preserve the wealth derived from this oil production and to invest in public infrastructure and the local non-oil economy.

What Does a Sovereign Wealth Fund Do?

A sovereign wealth fund is a state-owned investment fund with the goal of improving a country's economy and the standard of living for its citizens. It aims to do this by investing additional revenues or cash reserves (usually from state-owned enterprises) in stocks, bonds, real estate, and other financial securities.

Does the United States Have a Sovereign Wealth Fund?

The United States does not have a sovereign wealth fund; however, some states have their own sovereign wealth funds, such as Alabama, New Mexico, and North Dakota.

Who Owns the State Oil Fund of the Republic of Azerbaijan?

The State Oil Fund of the Republic of Azerbaijan (SOFAZ) is technically owned by the country; however, it is not part of the government or the central bank, it is mandated and operated by the constitution and laws of Azerbaijan.

The Bottom Line

Azerbaijan's sovereign wealth fund, the State Oil Fund of the Republic of Azerbaijan, invests the country's oil and gas revenues with the primary goal of preserving the nation's economy.

Article Sources
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  1. State Oil Fund of the Republic of Azerbaijan. "History."

  2. International Forum of Sovereign Wealth Funds. "State Oil Fund of the Republic of Azerbaijan."

  3. State Oil Fund of the Republic of Azerbaijan. "Recent Figures."

  4. State Oil Fund of the Republic of Azerbaijan. "Mission and Objectives."

  5. State Oil Fund of the Republic of Azerbaijan. "ANNUAL REPORT 2020," Page 11.

  6. State Oil Fund of the Republic of Azerbaijan. "ANUAL REPORT 2020," Page 41.

  7. State Oil Fund of the Republic of Azerbaijan. "General information."

  8. SWFI. "Top 100 Largest Sovereign Wealth Fund Rankings by Total Assets."

  9. State Oil Fund of the Republic of Azerbaijan. "ANNUAL REPORT 2020," Page 23.

  10. SWFI. "New Mexico State Investment Council."

  11. SWFI. "Alabama Trust Fund."

  12. SWFI. "North Dakota Legacy Fund."

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