18. The SWF’s investment policy should be clear and consistent with its defined objectives, risk tolerance, and investment strategy, as set by the owner or the governing body(ies), and be based on sound portfolio management principles.
18.1. The investment policy should guide the SWF’s financial risk exposures and the possible use of leverage.
18.2. The investment policy should address the extent to which internal and/or external investment managers are used, the range of their activities and authority, and the process by which they are selected and their performance monitored.
18.3. A description of the investment policy of the SWF should be publicly disclosed.
The Company’s primary goal is to improve asset management efficiency as well as to increase assets yield in the long-term by maximizing risk-adjusted returns through asset diversification in a manner consistent with the Investment Strategy.
To achieve its goal, the Company invests in traditional and alternative assets in the international financial markets with the investment horizon of 10-20 years, and other types of activities involving trust asset management.
The Investment Strategy covers the classes of investments in which the assets are to be invested; overall risk appetite for the portfolio; sets limitations on allocation between classes of investment; sets reporting and monitoring requirements. The Investment Strategy then requires to establish target returns and risk limitations, as well as minimum diversification requirements for the classes of investments; to define the purpose of using leverage; specific reporting and monitoring requirements for the classes of investments.
The Company actively implements risk management by monitoring possible risks, including credit risk, market risk, liquidity risk and operational risk.
The Investment Strategy covers the classes of investments in which the assets are to be invested; the balance between risk and return in the overall portfolio; determination of the benchmark against which the performance of the portfolio as a whole will be assessed; sets limitations on allocation between classes of investment as well as an amount of capital that can be managed by external managers; sets reporting and monitoring requirements.
The general outline of the Company’s process for external investment manager selection is outlined below:
- the Company uses external sources to create a list of investment managers that satisfy its selection criteria and
- conducts a quantitative evaluation process to create a Long list of managers;
- the Company conducts due diligence on managers in the Long list of managers, on the basis of which it forms a shortlist of managers;
- the Company performs further due diligence on managers in the shortlist of managers, on the basis of which a List of approved managers is formed;
- the List of approved managers is presented to the Board of Directors for approval.
Agreements, where all terms and conditions, as well as the responsibilities (including the reporting procedures) of the manager, are identified, are signed with each of the selected managers.
The Company monitors the investment managers and the investment performance on a regular basis and reports the results to the Investment Committee in accordance with internal procedures.
As was previously explained in the response to Question 4, the disclosure of the Investment strategy is subject to the NBK’s decision and can be provided upon request (given the NBK’s agreement to do so).