By Our Correspondent

Lagos (INVESTADVOCATE)-The International Monetary Fund (IMF) Monday announced new Rules and Regulations establishing three (3) sub-accounts with the Investment Account.

This is contained in a Statement by the IMF and made available to www.investadvocateng.com in Lagos Nigeria.

According to the IMF, the three (3) sub-accounts are the Fixed-Income, the Endowment and the Temporary Windfall Profits Subaccounts.

The IMF said its Executive Board approved the new set of Rules and Regulations for its Investment Account on January 23 2013 to replace those approved by the Board in 2006, and provide the legal framework for the implementation of the Expanded Investment Authority that is authorised under the Fifth Amendment to the Articles of Agreement, which became effective in February 2011.

This also is a key element of the Funds Income Model; aimed at diversifying the Fund’s sources of income and to put the Fund’s finances on a sound long-term footing.

The IMF affirmed that the investment objective of the Fixed-Income Subaccount, totaling about Special Drawing Rights (SDR) 8.4 billion at end-2012 (about US$ 13 billion), is to produce returns in excess of the 3-month SDR interest rate over time, while minimising the frequency and extent of negative returns and underperformance.

“Its assets are invested in marketable obligations of IMF members and International Financial Institutions that are denominated either in SDR or in currencies included in the SDR basket, and managed against a 1–3 year Government Bond benchmark, which is weighted to reflect the currency composition of the SDR basket” the IMF said.

While the Endowment Subaccount will be funded with assets attributed to profits from the strictly limited sale of holdings of the IMF’s Post Second Amendment Gold during 2009 and 2010; equivalent to an average price of US$850 per fine ounce (SDR 4.4 billion, or about US$ 7 billion).

The IMF further affirmed its investment objective is to achieve a real return of three percent (3%) over the long term, which is consistent with the Investment Account objective of generating investment returns to contribute to the Fund’s income, while preserving the long-term value of these resources.

“The endowment assets will be invested in a conservative, globally diversified portfolio consisting of fixed income assets and a limited portion of equities (including real estate investment trusts) in accordance with a strategic asset allocation benchmark” the IMF said.

Apart from the above, the IMF said the bulk of the assets will be passively managed by external managers, following widely used and available benchmark indices maintained by recognised providers.

“An initial allocation of five percent (5%) of the assets at the time of the effectiveness of the proposed rules will be managed actively by external managers, with a 65% share of fixed income instruments and 35% share for equities (the same as for the passively managed portion). The actively managed share will not exceed 10% of the total endowment assets” the IMF affirmed.

On the Temporary Windfall Profits Subaccount, the IMF said it’s funded with SDR 1.75 billion (about US$ 2.7 billion) of windfall profits from gold sales.

According to the IMF, the investment objective of this subaccount is nominal capital preservation while generating income, pending transfer of the assets to members as part of a strategy to make the Poverty Reduction and Growth Trust (PRGT), which finances the IMF’s concessional lending to low-income countries, self sustainable over the longer term.

“The new Rules and Regulations provide strong protection against actual or perceived conflicts of interest, including a clear separation of responsibilities between the Executive Board, management, and external managers, as well as the exclusion of certain investment activities that by their nature could be more susceptible to the perception of conflicts of interest” the IMF said.