The National Fund of the Republic of Kazakhstan was established in order to ensure stable social and economic development of the country, accumulate financial resources for future generations and reduce the economy's susceptibility in relation to unfavorable external factors.
According to the Decree of the President of the Republic of Kazakhstan # 42 "On National Fund of the Republic of Kazakhstan" dated August 23, 2000 the Fund's assets are accumulated on the account of the Government of the Republic of Kazakhstan with the National Bank of the Republic of Kazakhstan. According to the Agreement on Trust Management, the Bank exercises trust management over the account within the rules of conducting investment operations in accordance with the legal framework of the Republic of Kazakhstan.
Main directions of the National Bank's work on the first stages of the Fund's management included 1) developing investment strategy; 2) selecting a custodian for keeping the Fund's assets; and 3) selecting external managers for part of the Fund's assets.
In June 2001 the Government approved the Fund's investment strategy developed by the National Bank (also called the Rules of conducting investment operations of the National Fund).
These Rules determine general framework for the Fund's investment operations, including limits set on types and proportions in terms of various currencies, classes of financial instruments, external managers and a custodian. Besides, the Rules set the framework for managing risks arousing while handling National Fund, selecting the model portfolio, periodicity and content of National Bank's reporting on its work on trust management of the Fund to the Government.
Currently, the National Bank works with one global custodian, with whom an agreement was signed at the end of 2001. Important criteria for the selection of the custodian were quality of main custodial services as well as the quality and scope of additional services and their cost.
According to the Decree of the President of the Republic of Kazakhstan #543 "On certain issues of the National Fund of the Republic of Kazakhstan" dated January 29, 2001, the sources of formation of the National Fund are tax and other obligatory payments into the budget in excess of the planned payments from the organizations of raw material sector, as well as other payments and revenues that are not prohibited by the legislation of the Republic of Kazakhstan.
According to the data of the National Bank of Kazakhstan the Fund's assets were put mostly into money market instruments, particularly into the state securities of the USA in the amount of USD 345,326,402 as of December 31. Securities of the US agencies accounted for the largest share of portfolio in the amount of USD 886,101,363 on that day. Part of the portfolio in the amount of USD 8,945,135 were put through the US Federal Reserve System in foreign banks for one day on the security of securities (repo operations). The total market value of the National Fund assets as of December 31, 2001, stood at USD 1,240,372,900.
The Fund is being managed by the Management Council of the National Fund of the Republic of Kazakhstan formed by the President of Kazakhstan. The Council includes the President, the Prime Minister, the Chairman of the Senate of the Parliament, the Chairman of the Majilis of the Parliament, the Chairman of the National Bank, the Deputy Prime Minister Minister of Finance, Chairman of Accounting Committee on Control over the execution of the national budget.
The Council's functions include examination of the conceptual approaches in the use of the National Fund; approval of proposals on volumes and directions of the Fund's use, as well as the annual report on formation and use of the Fund.
To ensure transparency in the Fund's management, the external audit is conducted annually. As a result of the competitive selection process of an independent auditor held by the Ministry of Finance, Ernst and Young Kazakhstan Ltd. was selected winner of the proceedings.
The Ministry of Finance is planning to work further to strengthen the stabilizing role of the National Fund of the Republic of Kazakhstan.