Libyan Investment Authority Transformation Strategy

Libyan Investment Authority
LIBYAN INVESTMENT AUTHORITY
TRANSFORMATION
STRATEGY
Creating a world-class sovereign wealth fund to support Libya's future
EXECUTIVE SUMMARY
LIA faced significant challenges in repairing damage done by a long history of

interference and corruption under the previous regime
LIA has taken critical steps to transform itself

into a world-class sovereign wealth fund
New strategy approved by the Boards in July 2013
LIA will create three new funds for all future investments,
with clearly defined mandates, governance and rules
for inflows and outflows
Multi-year transformation program initiated in

October 2013
Future Generations Fund (for long-term savings

invested internationally)
Revised Law 13 will require approval, to reflect

improvements in governance, investment approach
and organisation
Budget Stabilisation Fund (for cushioning budget shortfalls)
Complied with Isolation Law, limited board

appointments to two per person and intends to
comply fully with the Santiago Principles over time
Local Investment & Development Fund (for stimulating

major private sector projects in Libya)
LIAs historic illiquid assets will be transferred to two

non-permanent portfolios over the next 3- 5 years:
Holdings Portfolio (for performing assets)
Legacy Portfolio (for non-performing, dormant
or non-strategic assets)

EXECUTIVE SUMMARY
LIA will no longer invest internationally on its own, but will appoint best-in-class
fund managers to manage funds and investment consultants to advise on
asset allocation
Funding for the new funds should come from existing
LIA assets, Central Banks excess foreign reserves,
government budget surpluses and directly from oil
revenues
LIA UK in London will be expanded to provide
support
in three areas:
(1) place the investment analysis team close to
the market;
(2) provide legal, audit and risk support on
international investments and subsidiaries;
(3) provide training for Libyan staff
LIAs organisational structure has been revised, and
a hiring plan for a CEO and other senior staff is in progress

Oliver Wyman was engaged to support and

accelerate the transformation program through
a number of major taskforces (13 taskforces activated
as of Q1 2014)
Deloitte was engaged to value LIAs portfolio as of end
2012; and provided write-downs of the expected value
of LIAs subsidiaries and illiquid holdings
A number of investigations have been launched into
fraudulent transactions and legal action is being taken
to recover some losses
LIA has launched a broader communications program
to demonstrate to local and international communities that
LIA is a reliable and transparent manager of the Libyan
peoples money
LlA has developed its online communications by updating
the website, launching a LIA Twitter account - @LIAchairman
- and re-launching a public Facebook page
THE LIAS MISSION
The Libyan Investment Authority

aims to be a world-class sovereign
wealth fund in terms of
performance, transparency, ethics
and accountability. We will play an
active role over many years in
improving the resilience of the
Libyan economy and enhancing
the well-being of the Libyan people
The Libyan Investment Authority will:

Create an alternative, diversified source of wealth for
Libyas future generations other than proceeds from oil
reserves and by investing internationally with a sustainable,
long-term view.
Stimulate Libyas economy through major, transformational
private sector projects, engaging international expertise
through joint ventures and knowledge transfer.
Provide stability against volatile oil revenues and
government budget shortfalls.

NEW STRATEGY AND TRANSFORMATION

As part of delivering the new strategy and transformation,
in 2014 the LIA Board of Trustee endorsed the following items:
Three year
Transformation plan
and objectives to address
identified challenges and
enable a new strategy

New organizational structure

which aligns with the strategy
and enhances control
functions, leveraging hubs
in Tripoli and London
1 LIA Transformation Strategy
The LIAs Long-Term Strategy
LIA ASSETS: THE PLAN

LIA will organise its assets into three new permanent funds and certain
historic assets into two non-permanent portfolios, each with a clear purpose
Future
Generations
Fund (FGF)
Libyan Local
Investment &
Development
Fund
Budget
Stabilisation
Fund (BSF)
Holdings
Portfolio
Savings for the future, after oil runs out

Investing internationally with a long-term view
Inflows a fixed percentage of oil revenues; outflows highly restricted
Domestic investment for socio-economic development
Stimulating private-sector projects in non-oil industries
Gateway for foreign expert partnership and investment
Protection against oil revenue volatility
Replenished when there is surplus, available to cushion shortfalls
Cash and fixed income fund with tranches of different liquidities
Private equity portfolio for current performing direct investments
Assets sold over time or transferred to FGF PE allocation
Prevents distortion of FGF asset allocation and preserves quality
Legacy
Portfolio

Temporary portfolio for all non-core or non-performing assets of LIA;

focusing on run-down or sale as profitably as possible
Nonpermanent
and to be
established
over the
next 3-5
years
FUTURE LIA FUND STRUCTURE

Over several years, the LIA will move from a complex holding company
structure to a simpler asset management structure
Current LIA holding structure
LIA as holding company
Securities &
Alternative
Investments
Long Term
Investment
Portfolio (LTP)
Future LIA fund structure
3+ layers of boards
30+ holding companies
550+ assets and companies
Subsidiaries
Associates
Medco
International
Ventures Limited
Libyan Foreign
Investment Co.
(LAFICO)
Oilinvest
(Tamoil)
First Energy Bank
Libyan African
Investment
Portfolio (LAP)
Dalia Advisory
Limited Company
Libyan Norwegian
Fertilizer Co.
Woodside
(N.A.) Ltd.
Itren Investment
Limited Co.
Libyan Local
Investment &
Development Fund
Menadrill
Investment Co.
BP Exploration
Libya Limited
Maplecross
Properties Limited
LIA as asset owner &

fiduciary manager
Joint Ventures
Budget
Stabilisation
Fund
Future
Generations
Fund
Local
Investment &
Development
Fund
Permanent funds
Libyan Oasis
Energy &
Water Co.
The new permanent funds will represent pools of assets under LIA, not legal entities
8

Holdings
Portfolio
Legacy
Portfolio
To be
established
over the next
3-5 years
TARGET ORGANISATIONAL STRUCTURE

LIA will implement a new organisational structure which better aligns with
the strategy and enhances control functions
Board of Directors
Committees
Nomination / Comp
Audit & Risk
Governance
Investment
Internal Audit
Non-Executive Chairman
LIA Advisory UK Ltd (London)
CEO
CEOs Office
Deputy CEO2
CIO
(FGF, BSF)
Treasury
Holdings &
Legacy
Equities
Evaluation &
Research
Fixed Income
Legacy
Alternatives
Phase II
COO2
Libyan
Development
Fund2
Subsidiary
LLIDF integrated
over time
Risk
Management
Financial Risk
Legal &
Compliance
Finance &
Control
IT & Facilities
HR
Legal
Finance
IT
HR Planning
Compliance
MIS &
Reporting
Facilities &
Admin
Resource
Management
Phase I
Non-Financial
Risk
Holdings
HR Services
Investment Departments
1. Includes Special Projects, Comm. & PR and Secretary to the CEO

Control Departments
Support Departments
2. Deputy CEO and COO will be introduced once phase I of the Organizational Transformation has been completed
DUAL LOCATION MODEL HUB APPROACH
1 LIA Tripoli, Libya
Head office (HO) location
Decision making & policy setting body
Primary base for majority of senior management,

control and support staff as well as treasury and
portfolios
2 LIA Advisory UK Ltd London, UK
10

Investment execution, analytics and research

on behalf of LIA
Provide services for select HO control functions

as well as DR/BC site
Center of investment talent excellence, training
Primary base for investment team and specific

specialised functions/individuals
LAW 13 REVISION
Law 13 requires revision to enshrine the vision & mission in law, and overall
governance must be strengthened to increase transparency & accountability
Key revisions to Law 13
Improved governance and

transparency
Streamlined responsibilities of Board of

Trustees, Board of Directors and CEO
LIA becomes a manager of managers

All investments to be made via best- inclass external fund managers
Asset allocation to be recommended
by best-in-class investment consultants
Structures defined for new LIA funds and

portfolios
Purpose and mandates
Governance
Inflows and outflows
11
Clarification that it is a sovereign entity

not a corporation

No LIA director or staff permitted to have

more than 2 board positions
All LIA directors and senior executive
employees have submitted the Isolation
Law form
LIA Transformation Strategy
KEY TRANSFORMATION PLAN OBJECTIVES

A transformation plan outlining key objectives has been defined to address
significant challenges and enable LIAs new strategy
12
Measure
Key Transformation plan objectives
1. Strengthen LIA
Core
Launch clear internal and external communication at home and abroad

Strengthen organisation, including restructuring and hiring
Establish robust systems and operations, including IT architecture upgrade
Develop business continuity plan
2. Strengthen LIA
& Subsidiary
Governance
Revise Law 13 for approval by the legislative body

Roll-out best practice governance, including new Board Committees
Strengthen controls across audit, risk and finance
Enhance reporting & MIS, including publication of Annual Review
Comply with Isolation Law and limitations on board memberships
3. Assign Initial
Assets to Funds
Allocate assets across subsidiaries into new non-permanent portfolios

Value >550 assets across subsidiaries using independent third party (Deloitte)
Unfreeze international assets at an appropriate time when a unity government is established
Take legal action related to past corrupt transactions
4. Establish Fund
Structure
Create three new funds for all future investments, including definition of Strategic Asset
Allocation.
Build-out LIA UK to support investment execution and specialized functions
Shift investment approach towards using external fund managers
Ring-fence historic, illiquid assets in new non-permanent portfolios
5. Align & integrate

Subsidiaries with
LIA
Improve communication & cooperation between LIA and its subsidiaries in near-term
Integrate subsidiaries (staff, capabilities, etc.) over time and simplify structure, in a phased
approach, starting with LTP then moving on to other subsidiaries

CREATION OF IMPLEMENTING TASKFORCES

The Transformation, led by the CEO and his Transformation Office, will be driven
through by 18 major taskforces and will be overseen by the Board.
The 18 task forces will be aligned to the five key objectives, addressing the LIAs main
challenges.
The task forces will be activated at different times, as part of a multi-year program.
The approved board strategy provides for all taskforces:
Review progress & interdependencies
Oversight and steering
Ad-hoc content injection
A strong governance structure will be established to monitor taskforce progress, rapidly

resolve issues and facilitate decision making.
13

PLANNED IMPLEMENTATION OF THE TRANSFORMATION
Year 1: Stabilising LIA
Underway
Year 2: Integrating Subsidiaries'
Next wave
1. Strengthen LIA Core
2. Strengthen LIA &

Subsidiary Governance
3. Assign Initial Assets to

Funds
4. Establish Fund
Structure
5A. Align Subsidiaries

with LIA
14

5B. Integrate Subsidiaries into LIA
Portfolio Performance Review
Best practice Sovereign Wealth Funds assess performance, aligned

to their Strategic Asset Allocation, at manager and fund level
Guiding principles
Risk &
investment
goals in line
with Strategy
Legal &
regulatory
requirements
Performance measurement framework
Strategic Asset
Allocation (SAA)
Defines the target allocation and relevant

benchmarks or absolute targets (to be
determined)
SAA for each of the 3 permanent funds
Tactical Asset
Allocation (TAA)
Shorter term investment plan, incl. tactical

adjustments, to meet SAA
Manager/ Asset
Selection
Allocations, benchmarks/ target at

manager or investment level in line with
the SAA and adjusted based on TAA
Defining target returns and risk profiles for distinct funds based on SAA increases
proficiency of performance evaluation
16

LIA is undertaking several activities to enable best practice performance

measurement going forward
Description
Responsible
Establish new fund

structure
Creation of three new permanent funds

(FGF, Budget Stabilization Fund and LLIDF)
BoT approves
BoD recommends
Select Investment
Consultants (IC)
Determine Strategic Asset Allocation (SAA)

& target returns for the three new funds
BoT approves SAA

BoD approves IC on
Invest. Com. / mgt advises
Select External Fund

Managers
Manage assets based on the defined SAA
BoD approves
Invest. Com./ mgt
recommends
Select Transition
Managers
Liquidate or clean up existing marketable

security investments to be transferred into
the new fund structure
BoD approves
Invest. Com. / mgt
recommends
Activities
Revamp MIS &

Reporting
17

Enhance reporting to measure portfolio

performance against target returns
CEO oversees
COO/ Finance & IT Dept.
Heads develops,
implements
Portfolio Performance Review: Marketable Securities
In the 7 month period following June 2013, LIA and LTP marketable securities
increased by a CAGR of 3% to reach ~ USD 40BN in January 2014
LIA and LTP marketable securities
By asset class in $BN
+3%
45
40
38.5
40.5
39.8
3.0
3.0
Alternatives
Growth is driven mainly by fair value

increase of 14% in equities
6.7
6.4
Fixed Income
10.6
10.1
Equity
Fixed Income decreased by 3%, mainly due

to 9 LIA bonds that matured throughout the
period
Market value of LIA bonds at expiry was ~
$256MM
3.4
35
$1.3BN growth from June 2013

to January 2014 (3% CAGR)
6.6
30
25
8.9
20
Matured fixed income portfolios

contributed to cash increase
15
Market value of remaining fixed income

increased over the period (from
$6.33MM to $6.40MM)
10
19.7
20.2
20.2
LIA subsidiary investments in marketable

securities (LAFICO, LAP and LLIDF) have
been excluded in the performance review
5
0
Jun-13
Dec-13
Jan-14
Note: Cash represents LIAs position only

Source: Oliver Wyman analysis, MI report for June 2013, December 2013, and January 2014
18
Cash

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