East Timor the Steven Bradbury of SWF’s!

Karl FitzgeraldCommentaryLeave a Comment

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Creative Commons License photo credit: J.P. Esperança

East Timor’s Sovereign Wealth Fund has outperformed all the big boys by playing it conservative. Well done!

East Timor’s oil fund is thriving thanks to boring investment.

IN THE East Timorese capital’s joke of a “financial district”, roosters scratch in the dust as a family of goats bleat at vendors selling porn CDs, “jiggy-jig” as they sleazily hiss at passers-by.

It’s a sad and unlikely place to spawn a master of the global financial universe, inasmuch as any still exist after the economic conflagration. But in his makeshift office by the bank building, Timorese civil servant Venancio Alves Maria is doing something the storied Temaseks, the Warren Buffets and Citigroups in more sophisticated time zones away can’t boast. He’s making money.

Alves Maria is the executive director of the Petroleum Fund of Timor-Leste, the Government authority entrusted to invest the oil and gas royalties deriving from the Timor Sea fields between East Timor and the Northern Territory. After barely four years, the fund has about $6 billion invested, about eight times East Timor’s non-resources GDP. The fund gets about $250-300 million added to it every month, and has returned 3 to 5 per cent annually since its inception in mid-2005. In a world where the trillions of investments lost by crooks, frauds and desk-jockey cowboys require responding trillions in taxpayer-funded government bail-outs, Venancio and his fund stand out as stellar performers.

So what’s his secret? The short answer is bad politicians. Such is the chaos East Timor has descended to in the decade since it broke free from its Indonesian military colonisers, its warring political clans can’t agree on how to diversify their petrodollar bounty. So Indonesia-educated Venancio and his board take the only legally required default option open to them, plunging it all in the most boring investment around — US Treasury bonds.

Thankfully the oil rents haven’t pushed up land rents yet. Let’s hope the corrupt politicians haven’t bought up all the land so that when they finally overthrow the Trust’s Charter they clean up from the inevitable land price inflation. This 2 dimensional economic framework has hurt Chavez, has hurt Putin, Norway too. A holistic economic reform would see the land rents recycled back to the government rather than left wide open for speculators and banks to graze on.

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