Azerbaijan’s state oil fund has a 38% exposure to gold. Could that pose a problem?
The $73bn State Oil Fund of the Republic of Azerbaijan, or Sofaz, has increased its exposure to gold from 12 per cent in 2023 to 38 per cent now. That has been a boon with the price of gold rocketing, but could that pose a problem? (Reuters/Angelika Warmuth)
Good morning. We’ve covered the soaring price of gold several times in AOX over the past few months and this week we thought we would look into one of the asset owners who has maybe leant into that trend the hardest.
To recap, the price of gold is now $4,700 - up 69 per cent over the past 12 months. Last week it peaked at $5,300.
Not many asset owners have plunged headfirst into this trend, perhaps apart from one: the $73bn State Oil Fund of the Republic of Azerbaijan, or Sofaz, which published its results last week.
It now has an exposure to gold of 38.2 per cent, making it the single largest asset class in the fund.
Sofaz’s exposure has been ticking upwards for several years. In 2023 it was 12 per cent, but by 2024 it was 20.6 per cent.
For those who don’t want to do the maths, that means Sofaz owns 200 tonnes of gold.
The fund has attributed its decision to plough into gold to “central bank purchases, ongoing uncertainties, and geopolitical risks”, as well as the rising price of gold.
For all of this exposure to gold, the fund reported a return of 6.2 per cent for 2025 - growth of $4bn.
Though it appears Sofaz doesn’t include the value of its gold investments in its performance analysis, attributing this to FX effects instead. We asked Sofaz why it does this.
A spokesperson said: "Sofaz attributes investment performance into clear components - income (eg, coupons, dividends, rental income and other cash yields), price appreciation/depreciation of investments (across bonds, equities, and alternative assets), and a separate foreign-exchange revaluation component.
"Within Sofaz's performance framework, gold is treated as a currency-like reserve asset: therefore, changes in the market value of gold bullion are attributed to the FX revaluation component."
Sofaz also said it gained $12bn from changes in FX rates and gold prices during 2025 (based on its assets of $60bn at the start of 2025 this makes a return of 20 per cent).
But Sofaz faces a conundrum: in 2025 it transferred $8.5bn to the state budget. This is more than the amount of money it generated in returns.
Sofaz has made a big bet on gold, which has paid off so far. But if it stops paying off then the fund has questions to answer about how much money it can generate for Azerbaijan’s budget.
