The document discusses commodity savings funds and their design considerations. It notes that several countries have established oil funds to manage commodity revenues and avoid volatility. Key design aspects include spending rules to separate savings from budgetary spending and asset allocation to convert non-renewable resources into diversified financial assets. Common spending rules aim to generate stable income for the government while preserving capital. Strategic asset allocation is important to reduce risk and volatility from commodity price fluctuations.

1. Commodity Savings Funds: Asset allocation and spending rules Libreville, Gabon March 28-30, 2008 Stéphane Piot, CFA Lead Financial Officer Sovereign Investments Partnerships World Bank Treasury

5. Examples of savings & stabilization funds Source: Morgan Stanley, Wikipedia, and others Country AUM (US$ bn) Inception Year Source Purpose Abu Dhabi 350 to 875 N/A Oil Saving Norway 350 1990 Oil Saving Kuwait 250 1960 Oil Saving Russia 160 2004 Oil Both Qatar 50 2000 Oil and gas Saving Alaska 40 1976 Oil Saving Kazakhstan 18 2000 Oil, gas, metals Both Alberta 16 1976 Oil Saving Chile 10 1985 Copper Both Botswana 7.5 1966 Diamonds Saving Timor-Leste 2 2005 Oil Saving Azerbaijan 2 1999 Oil Saving Trinidad & Tobago 2 2007 Oil & Gas Both

9. Risk habitat of Funds Central bank Reserves & Stabilization funds Funds for the future Pension funds State owned enterprises & government holding companies Money markets High grade fixed income Small, if any, allocation to corporate Global fixed income Global equity Hedge funds Real estate Commodities Strategic corporate stakes Russia Stabilization Fund Chilean Stabilization Fund Central Bank of Nigeria Central Bank of Algeria CB of Malaysia CB of Indonesia Temasek, Singapore Russia Pension Fund Chile Pension Reserve Fund Singapore GIC China Investment Corp Bank of Korea—KIC Norway Pension (Oil) Fund

10. Strategic Asset allocation is critical

11. Expect Volatility

13. Bonds and stocks do well when oil and gas prices are falling

14. Commodity fund design OBJECTIVE DESIGN Capital preservation for future spending Saving rule, spending rule or guideline based on total wealth that assures minimum annual income to government and meets future spending needs Meet current income needs Generating independent source of foreign currency income Investment in diversified portfolio of risk assets for return Smoothing of total foreign currency revenues Investment in financial assets with low or negative correlation to commodities Sterilizing foreign currency inflows Investment only in overseas assets Domestic investments flow through budget process

19. Sovereign Commodity Fund Workbench