What next for Angola’s SWF?

Fondo Soberano de Angola is putting together a new strategy following a recent governance change, but its former chairman continues to make headlines.

“It was really about taking the risks at – one could say – the wrong time,” José Filomeno dos Santos, former chairman of Angola’s $5.1 billion sovereign wealth fund, told Private Equity International when we sat down to discuss its maiden profit in October 2017.

“People tend to buy assets when everybody else is buying, rather than when they are depreciating. That’s the real dynamic of the market; it’s not as rational as we would like.”

José Filomeno dos Santos

Dos Santos – the son of Angola’s former president – was removed from his position at Luanda-based Fundo Soberano de Angola in January following the replacement of his father by incoming president João Lourenço four months earlier. The former chairman made headlines again in late March amid formal accusations of fraud over the alleged illegal transfer of $500 million from Angola’s central bank to the UK, according to the BBC.

The sovereign wealth fund is now led by Carlos Alberto Lopes, a former finance minister. A spokesman told PEI the fund was in the process of putting together a new strategy in the wake of this change.

Dos Santos had led the fund since 2013 – one year after its formation. His tenure saw FSDEA report its first profit in September, with the $44 million of gains for 2016 largely driven by liquid assets and a reduction in total operating expenses from the previous year.

It has seven sector-specialised private equity investment funds focusing on areas such as healthcare, agriculture and infrastructure. Just $489.9 million of the portfolio’s $2.7 billion allocation to private equity had been invested as of 30 September 2017, according to a Q3 update. Dos Santos told PEI in October it planned to increase this allocation to $3 billion by the end of 2017, which it hoped to fully invest across the continent over the next three years.

Deploying capital in Africa is not without its challenges; those familiar with the continent often espouse the need for feet on the ground or acceptance in local markets. Private equity transactions, which sometimes require the negotiation of concessions to manage a state-owned enterprise for a set period, can be delicate matters, dos Santos noted.

“It’s important to have obviously someone which is very well connected to these markets and which can follow up on the implementation of the deal as time goes on.”

In November, leaked Paradise Papers revealed the fund had granted management of a whopping 85 percent of its assets to just one external investment manager, Quantum Global. The Zug-headquartered firm was led by chief executive Jean Claude Bastos de Morais. De Morais – a friend of dos Santos – used FSDEA’s funds to make at least four investments in assets in which he held an interest, The Guardian reported.

Jean Claude Bastos de Morais

An FSDEA spokesman told PEI at the time that its investment policy authorised the allocation of 100 percent of assets to a single external manager during its first 18 months of operations, between 2014 and 2015. During this period, Quantum had been hired to establish and manage its seven private equity funds.

“The basis of FSDEA’s investment policy is its initial endowment of $5 billion and its subsequent endowments of up to $3.5 billion per year, the equivalent to 100,000 barrels of oil per day based on the 2013 prices,” the spokesman said.

“Whereas the initial endowment was paid-in by mid-2014, the subsequent endowments were never received by FSDEA. This lack of additional endowments, which could have increased FSDEA’s capital to $15.85 billion between 2013-15, prevented the hire of two additional external managers during the period.”

FSDEA did not comment on whether its relationship with Quantum has changed since the leadership overhaul. What shape its new strategy will take remains to be seen, but its overall mission as a sovereign wealth fund is likely to remain unchanged.

“For a sovereign wealth fund it’s key to have a strategy that reaches all the way to the common man in the street,” dos Santos said in October. “Because at the end of the day, that’s how you’re going to be judged.”