Libyan Investment Authority (LIA)

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Snapshot

The Libyan Investment Authority (LIA) is the country’s sovereign-wealth fund, which is tasked with investing Libya’s savings abroad. The LIA is thought to manage some US $50-70 billion of assets and owns several stakes in big European firms, including 3 percent of UniCredit, Italy’s biggest bank, and 3 percent of Pearson, a media group headquartered in London. The funds held by the LIA in 2011 were said to amount to $10,000 for every Libyan.[1]

The source of the sovereign wealth fund is primarily surplus oil revenues from Libyan oil reserves, and as a government entity, the fund ultimately answers to the Libyan Prime Minister. The LIA is governed by a Board of Trustees consisting of a mix of government officials and Libyan banking experts.[2] As of October 2011, Mohammed Layas held the position of Chairman and Rafiq al-Nayed had been appointed as interim Chief Executive.[3]

Structure and subsidiaries

About $25 billion of the fund’s assets fall under LIA subsidiaries and operating companies, such as the Long Term Investment Portfolio and Libyan Arab Foreign Investment Company (Lafico).[4]. According to the International Monetary Fund (IMF), the LIA invests mostly abroad although some of its investments are channeled to the domestic Libyan oil sector and to the Libyan Development and Investment Fund (which had holdings of approximately $13 billion as of 2010).[5] In addition, the LIA is in charge of the assets of OilInvest (also known as the Tamoil Group).[6]

History

The LIA was set up in 2006 by Saif al-Islam, one of Muammar Gaddafi's sons[7], taking over ownership of a number of other previously started state investment companies, notably the Libyan Foreign Investment Company (Lafico), founded in 1981.[8] It quickly became a high profile vehicle for the Libyan regime's efforts to re-engage with the global economy. Mohammed Layas, who had held senior positions at the Libyan Foreign Bank and Bahrain-based Arab Banking Corporation (ABC), joined as Chairman and Mustafa Zarti was appointed as deputy head.[9]

Allegations of mismanagement

Despite claims to the contrary by LIA executives, there have been numerous reports of alleged cases of mismanagement, accusing the LIA of becoming a complex network of investments run by a tight-knit circle, including a close friend of Saif al-Islam himself. An audit by professional services firm KPMG in May 2010 was said to depict an "institution in disarray" and unable to manage its ambitious investment strategy. Many of the deals made were said to be politically motivated, especially in LIA dealings with Italy following the signing of a treaty of friendship with Tripoli in 2008.

The UK's Financial Times also claims that some deals involved links with the Libyan elite, such as a $300 million investment in Palladyne International Asset Management of the Netherlands, one of whose directors was the son-in-law of Shukri Ghanem, former chairman of the Libyan National Oil Corporation (NOC). According to reports in the newspaper, as business ties grew, close-knit personal relationships also flourished in the LIA's dealings . In another example, the LIA would often use ABC as its bank when investing overseas. Mahmoud Zewam, head of portfolio management at ABC, also sat on the Board of the LIA, and Layas was chairman of ABC as well as of the Libyan sovereign wealth fund.[10] In the later years of the Gaddafi regime, the LIA began to invest in Libya's upstream oil industry, although that had previously been the prerogative of the National Oil Corporation.

In 2007 BP signed a major bilateral exploration deal to re-enter Libya during a visit by British Prime Minister Tony Blair to Gaddafi. The British oil major partnered with the LIA, splitting the portions 85% (BP) to 15% (LIA). According to press reports, the deal was likely to involve an investment of $2 billion to explore offshore in the Sirte Basin and onshore in the Western Ghadames Basin.[11] Since leaving his post, press reports have made links between Blair's commercial lobbying activities and his influence on those figures managing the LIA.[12] It was reported in 2010 that NOC Chairman Ghanem had recommended that the LIA buy a stake in the troubled BP.[13] However, there have been no reports of this recommendation being followed through.

When Sami Rais was appointed LIA Chief Executive in October 2009. He reportedly attempted to impose stricter corporate governance but met stiff resistance from loyalists to Saif al-Islam Gaddafi.[14]

Future

Reports in August of 2011 claimed that some $2.9 billion were missing from the accounts of the Libyan Sovereign Wealth Fund, and that those investigating the body had found 'misappropriation, misuse and misconduct of funds'. Mahmoud Badi, a former civil servant in the Gaddafi regime was understood to have been appointed by Ali Tarhouni, the member of the National Transitional Council (NTC) responsible for oil and finance, on an interim basis in order to carry out investigations.[15]

According to the Financial Times, the LIA will be required to play a leading role in funding post-conflict reconstruction in Libya.[16] When al-Nayed was appointed interim head of the LIA by the NTC, he said that his first priority was to raise emergency funds for the provisional government by using frozen overseas assets to generate loans. Of the LIA's $19 billion in cash, $17 billion was said to be held by the Central Bank, whose assets were also frozen at the time. Al-Nayed also announced his intention to bring greater transparency to the wealth fund by creating an independent task force to probe irregular transactions. The LIA was to report to the NTC until the provisional government formed a new board of directors and trustees.[17]

As of October 2011, there was not yet a clear, public picture of where the LIA's funds were located, however the bulk of the fund's assets were said to sit in cash and liquid assets, which could prove more difficult for Western governments to identify.[18] In January 2012 Mustafa Abdul Jalil, chairman of the National Transitional Council (NTC), said that there would be a reassessment of Libya's financial commitments given the amount of reconstruction needed in Libya itself, but that Libya would increase its investments in Sudan, particularly in agriculture and property.[19]

External Links

Official website: www.lia.ly

References

  1. From Tripoli to Mayfair. Tracking down Libya’s mysterious sovereign-wealth fund”. The Economist, 10 March 2011.
  2. Libyan Investment Authority”. Investopedia, retrieved 19 October 2011.
  3. After Gaddafi: A Spent Force”. Financial Times, 8 September 2011.
  4. After Gaddafi: A Spent Force”. Financial Times, 8 September 2011.
  5. Libya: Investment Climate Statement”. WikiLeaks, 14 January 2010.
  6. LIA”. Libyan Investment Authority, retrieved 19 October 2011.
  7. Libyan sovereign wealth fund 'missing $2.9bn'”. BBC News, 26 August 2011.
  8. Libyan Investment Authority”. SWF Institute, retrieved 26 October 2011.
  9. After Gaddafi: A Spent Force”. Financial Times, 8 September 2011.
  10. After Gaddafi: A Spent Force”. Financial Times, 8 September 2011.
  11. BP Snares Huge Libyan Gas Fields”. Red Orbit, 31 May 2007.
  12. Tony Blair 'visited Libya to lobby for JP Morgan”. The Telegraph, 18 September 2011.
  13. BP 'good value' says leading Libyan oil executive”. BBC News, 6 July 2010.
  14. After Gaddafi: A Spent Force”. Financial Times, 8 September 2011.
  15. Libyan sovereign wealth fund 'missing $2.9bn'”. BBC News, 26 August 2011.
  16. After Gaddafi: A Spent Force”. Financial Times, 8 September 2011.
  17. Libya Fund Seeks to Free Asset Loans”. Financial Times, 31 August 2011.
  18. From Tripoli to Mayfair. Tracking down Libya’s mysterious sovereign-wealth fund”. The Economist, 10 March 2011.
  19. Libya undecided on future of African investments”. Guardian, 10 March 2011.