In 2023, expenditures associated with the management of the National Fund of Kazakhstan and its audit were three times bigger than in 2022. This increase was due to fees and bonuses to external managers for excess returns. Costs associated with fund management and its annual audits rose from $48.8mn in 2022 to $155.4mn in 2023.
National Bank’s response
The National Bank of Kazakhstan, which manages the sovereign fund on behalf of the government of the Republic of Kazakhstan, provided some insights into these costs.
- Batur Vakhidov, deputy head of the Monetary Operations Department of the National Bank of Kazakhstan, explained.
Role of external managers
In 2023, the surge in costs was driven by an increase in payments to external managers who were hired by the fund to diversify its investments in different asset classes, countries, and management styles.
The National Bank stated, “This happened because foreign tax agencies have fully restored their scope of work after the COVID-19 pandemic in 2020-2020, as they once again require presentation of documents proving the tax residence of managers.”
Invoices from external managers for services rendered in the past few years (2021-2022) accounted for a significant part of these costs and amounted to $99.9mn. “About 80% of this money are performance fees that should be paid to external managers when they outperform the broad market,” the regulator said.
Returns and losses
According to the Ministry of Finance, the National Fund reported $3.9bn in returns last year after $1.7bn in losses in 2022 and $3.7bn in returns in 2021. In 2015, the fund reported $22.6bn in investment profitability, a historical high for the institution. This incredible growth was driven by the revaluation of assets mainly nominated in foreign currency. At the time, the National Fund costs associated with asset management were at $26.6mn.
The average rate of costs for asset management and audit of the fund in 2018-2022 was $39.9mn. The average rate of return on investments for the same period was $37.7bn.
Performance of different asset classes
According to the Finance Ministry’s report on the National Fund income and costs in 2022, excess returns of a stabilizing part of the fund’s portfolio were negative (-0.18% and +0.01% in 2021). Only two asset classes “sovereign bonds in mature markets” (+0.50%) to the benchmark performance) and “global equity” (+2.45%) out of six reported excess returns. In 2021, only the global equity class outperformed the overall market (+1.50%).
On top of that, the work of Kazakhstan’s National Fund is less transparent compared to its peers in Norway and Azerbaijan.
Follow Daryo's official Instagram and Twitter pages to keep current on world news.
Comments (0)