Resolution 38/2025 of 7 November was published, approving the investment policy of the Mozambique Sovereign Fund, and establishing a prudent and sustainable management framework for its revenues, including the definition of objectives, risk profile and limits, a strategic benchmark index, and duration and credit criteria. Investments must be carried out in international financial markets, outside the oil and gas sector, in USD- and EUR-denominated debt instruments, with reference to investment-grade governmental and non-governmental fixed-income portfolios. The Bank of Mozambique is responsible for risk management under strict parameters, and investments in Mozambican assets or transactions that could compromise financial stability or breach international best practices are expressly prohibited.
Resolution 38/2025 of 7 November (Resolution), was published in the Official Gazette, approving the investment policy of the Mozambique Sovereign Fund (FSM), under the terms of Article 19(2)(a) of Law 1/2024 of 9 January (which approved the establishment of the FSM).
Objectives of the FSM investment policy
The overall objective of the FSM's investment policy is to ensure that the FSM's revenues are managed in a prudent and sustainable manner and are always aligned with economic and social policies and priorities to drive wealth creation and promote long-term economic development.
To pursue this overall objective, the Resolution also defines specific objectives, namely: (i) defining the risk profile of investments and the specific risks associated with those investments; (ii) establishing a strategic benchmark for the FSM; (iii) establishing a benchmark duration for the investment of FSM resources, as well as the permissible deviation margins; (iv) establishing acceptable credit risk limits for the allocation of FSM resources.
Strategic Benchmark Index
The FSM's Strategic Benchmark Index (IRE) is composed of the following sub-indices:
- Benchmark index for fixed-income government securities portfolio (with 70% allocation and approximate maturity of two years), with the following allocations:
- 70% in Treasury Bonds issued by US Government denominated in USD; and
- 30% in Treasury Bonds issued by Eurozone governments denominated in EUR.
- Benchmark index for the fixed-income non-governmental securities portfolio, with the following allocations:
- 70% in fixed rate bonds issued by investment grade companies denominated in USD;
- 30% in fixed rate bonds issued by investment grade companies, denominated in EUR.
The sub-indices are approved by the Minister responsible for finance, following a proposal from the Bank of Mozambique (BM), and will be produced by a reputable index provider.
Rules on the composition of the investment portfolio
The FSM's funds must be invested in the international financial market and in assets that are not related to the oil and gas sector (there may be indirect exposure to these markets, but it must be minimal). The investment portfolio must be invested in marketable debt instruments, as well as receipts or certificates of deposit for such debt instruments, denominated in USD and EUR, or in investment units of funds whose assets are in line with IRE. Investments may be made in derivatives for the purposes of portfolio asset risk management.
The investment reporting currency of the FSM is the US dollar.
Scope limitations
The following restrictions apply to the FSM:
- The BM shall not invest in: (i) financial instruments issued by Mozambican companies, (ii) local currency, (iii) real estate or infrastructure located in Mozambican territory, or (iv) real estate companies, infrastructure companies, or real estate funds with a primary focus on Mozambique.
- The BM shall not engage in: (i) investment operations that could compromise the country's financial stability; and (ii) investment operations that violate international best practices in sovereign wealth fund management.
Risk management
The BM shall organise the management of investments to ensure that:
- The expected tracking error (defined as the expected annual standard deviation of excess return between the investment portfolio and the relevant benchmark index) does not exceed 0.5%;
- Government and non-government fixed-income securities portfolios do not deviate by more than 5% of their effective IRE weight;
- The difference in the modified duration between the portfolio and the IRE does not exceed 0.5 years;
- The average credit rating of the portfolio is not lower than the IRE by more than one rating notch;
- The portfolio does not invest in high-risk debt instruments (credit rating below BBB-);
- The concentration risk of the investment portfolio is not significantly higher than that of the IRE, measured by a minimum overlap between the portfolio and the IRE of at least 75%.
Morais Leitão and MDR Advogados, members of the Morais Leitão Legal Circle network are fully available to clarify and assist with any questions.
