Nigeria’s sovereign wealth fund launches on an unfortunate day to be long US debt

September 18, 2013
September 18, 2013

Nigeria just started a national savings account, but the timing could have been better—it plowed $200 million into US debt, just as the Federal Reserve pulled the carpet out from underneath the oil-rich nation’s investment strategy.

That’s not to say it will end badly. Nigeria is smartly following in the foot-steps of other countries whose economies are dependent on non-renewable natural resources, creating a $1 billion fund to invest in development and save for a rainy day. The plan is to save $1 billion a year, with roughly a third invested in local infrastructure, another third aimed to preserve funding for future generations, and $200 million in US debt to provide a cushion against financial instability. (The remaining 15% remains unallocated).
Nigeria reportedly invested $50 million in US treasuries, and is constructing a $150 million US corporate bond portfolio. The only problem is that the investment was based in part on confidence that the Fed would begin slowing its bond-buying program—a move widely, but wrongly, expected by the markets. Those expectations had caused yields on US Treasuries to rise to their highest level in years, making them a more attractive investment.

The fund’s chief executive, Uche Orji, a former Goldman Sachs banker, told the Financial Times that the bond market is now “fairly valued.” But when the Fed didn’t taper, yields quickly plummeted by 26 basis points. Orji does seem right on about one call: The over-valuing of US equities, which peaked on the Fed news. He plans to focus the future generations fund on emerging market stocks and other assets with more potential for growth.

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