On December 29, the State Oil Fund of Azerbaijan (SOFAZ) marked its 26th anniversary and presented an updated investment policy for 2026. Established on the wave of oil revenues from the development of the Azeri–Chirag–Gunashli block of fields in the Caspian Sea, the fund has accumulated more than $180 billion from this project over the years.
As of the beginning of the fourth quarter, the fund’s assets amounted to approximately $70.2 billion, representing a 16.9% increase from January to September. The final figure for the full year 2025 will be published only in the first quarter of 2026. Experts note that the key driver of asset growth was the reallocation of the investment portfolio toward gold: nearly one-third of the fund’s assets were placed in this instrument amid persistently high prices, currently hovering around $4,500 per ounce.
The fund holds 1,844.8 tons of gold, and its further accumulation is envisaged under the fund’s strategy. According to the SOFAZ budget for 2026, the share of gold in the investment portfolio will reach 35% of total value, with a possible deviation of ±4%. The increase in this share is occurring through a reduction in investments in debt instruments. As a result, at least one-third of the State Oil Fund of Azerbaijan’s investment portfolio will be concentrated in gold.
Analysts at Global Sovereign Wealth Funds consider this approach potentially risky, pointing to the high volatility of the gold market. In their assessment, SOFAZ’s asset growth in 2025 was driven primarily by gains from exchange rates and gold market dynamics, rather than by oil and gas revenues, which declined by 16.8%.
In essence, the fund has undergone a “quiet portfolio revolution”: over five years, the share of gold as of the beginning of the fourth quarter of 2025 rose to 32.8%, up from 14.2% in 2020, while allocations to fixed-income securities fell from 63.8% to 34.7%.
At the same time, the share of instruments rated AAA was reduced, with a shift toward AA, A, and BBB securities—implying higher risk but potentially higher returns.
According to Global Sovereign Wealth Funds experts, gold assets themselves are a source of volatility, and in the event of a sharp strengthening of real interest rates or the US dollar, increased concentration in this segment could have negative consequences. At the same time, the agency positively assesses SOFAZ’s investments in the real economy. These include the acquisition of a 49% stake in an Italian portfolio of solar power plants with a capacity of 402 MW, as well as a £50 million investment in London Gatwick Airport alongside Global Infrastructure Partners, BlackRock, and other sovereign funds.
Overall, foreign sector analysts view SOFAZ’s investment outlook as constructive but exposed to fluctuations. They consider it advisable to reduce the excessive emphasis on gold and adopt a more balanced approach to equity investments. At the same time, it should be taken into account that amid global economic turbulence, central banks and sovereign wealth funds in many countries are also actively increasing their gold reserves.
Under the investment policy approved on December 29 for 2026, the share of equities may reach up to 25% of the total portfolio value, with a maximum upward deviation of 3%. Real estate investments may account for up to 10%, with the same permissible deviation. The average size of the fund’s total investment portfolio for 2026 is projected at $64.8 billion. The base currency of the portfolio is the US dollar, with about 85% of assets denominated in US dollars, euros, and pounds sterling.
It is expected that during the year around 30% of the investment portfolio, with a permissible deviation of no more than 10%, will be allocated to debt instruments and money market instruments.
Risk management requirements stipulate that the actual weighted-average duration of the debt portfolio will be determined by the fund depending on global market conditions and must not exceed six months. The maximum share of a single financial institution—excluding benchmark custodial banks and sovereign debt obligations—is set at 15% of the total portfolio value.
To ensure liquidity and the timely fulfillment of obligations, SOFAZ must continuously hold at least $100 million in highly liquid short-term instruments. The share of the fund’s assets managed by foreign companies must not exceed 60% of the investment portfolio, and no single management company may account for more than 5% of assets.
It should be noted that SOFAZ assets, together with government deposits and Central Bank reserves, form the core of Azerbaijan’s strategic foreign exchange reserves. Therefore, amid declining oil production and exports, diversification of the fund’s investment portfolio is becoming especially important. This, in turn, requires SOFAZ to make balanced decisions, continuously monitor global markets, and take into account assessments by international experts, as the fund’s sustainability is directly linked to the financial stability of the Republic of Azerbaijan in the medium and long term.
Lamiya Isayeva
