A visit to the homepage of the largest sovereign wealth fund in the world, Norway’s “Government Pension Fund Global,” is dizzying. For months, Norges Bank Investment Management, the investment arm of the country’s central bank, has been highlighting a growing number – the current market value of all its holdings. In July 2016, they totaled $825 billion.
Stephen Yngve Slyngstad, 54, has been with the fund since it began in 1998, and has been heading it since 2008. The Norwegian studied politics in Paris, economics in California and law in Oslo, so he brings many talents to the job. Converted to the national currency, his fund manages more than 7,000 billion Norwegian kroner. If the money were to be distributed among the five million inhabitants of the Scandinavian nation, each would become a millionaire in kroner.
Revenues from the state-controlled oil and gas business flow into Norges Invest. And since energy prices have fallen sharply since 2014, the fund is becoming increasingly important. That’s because it was set up to assure the financing of the Norwegian welfare state after the sources of energy have dried up. And the fund is supposed to steady the state budget, which includes 4 percent of its returns. In the first quarter of 2016, for the first time in history the Norwegian government withdrew money from Norges Invest – €2.7 billion to beef up its finances.
“Our goal is to achieve the best possible returns with an acceptable degree of risk,” Mr. Slyngstad says. Since 1998, returns have averaged 5.6 percent, though the fund manager won’t say whether he is satisfied by that performance. Unlike many other fund managers, he is not completely free to decide where to invest the money. Norges Invest is administered by the Norwegian central bank, which receives instructions on investments from the finance ministry. Until 2007, Mr. Slyngstad and his team were allowed to invest 60 percent in foreign stocks and 40 percent in bonds. In 2010, the share of bonds was reduced to 35 percent, while Mr. Slyngstad invests the remaining 5 percent in real estate.
Diversification is supposed to minimize risk. The first real estate was acquired in 2011 in Great Britain; there were subsequent purchases in the United States and France. Few details are revealed at the Oslo headquarters of Norges Invest and the Norwegian Central Bank. All Mr. Slyngstad is willing to say is that further acquisitions in Great Britain, Germany and France are planned. It’s difficult to get him to be specific. His reticence likely has to do with the fact that the fund has an enormous influence on financial markets.
Mr. Slyngstad aims at good governance rather than Wild West capitalism. Kant’s categorical imperative counts for more here than Milton Friedman’s radical economics (“The business of business is business”). Because of the debt crisis in Europe and the concomitant loosening of monetary policy, Norges Invest has increasingly turned away from the euro; but it is also wary of the dollar, pound and yen. Instead the fund began to purchase fixed-interest securities from countries such as Turkey, Russia and Taiwan. Mexican government bonds also number among the principal investments.
Norges Invest is active in 78 countries, but not in Norway, where investments could cause the relatively small economy to overheat. The billions from oil and gas flow into 9,000 companies, 1.3 percent of all shares issued throughout the world, and 2.3 percent of those in Europe. Among the largest investments are Nestlé (nearly 2.5 percent), Shell (2.0 percent), Daimler (2.6 percent), BASF (3.0 percent), Linde (6.6 percent) and BMW (3.0 percent). Even part of the German soccer club Borussia Dortmund (0.2 percent) is owned by the Norwegians, who aren’t concerned with trophy assets but seek serious investments.
Because of its politically dictated, ethical investment strategy, Norges Invest has repeatedly made headlines.
Mr. Slyngstad’s people are viewed as outsiders in the Anglo-Saxon financial world, as earnest experts with sweaters and beards. “One has the feeling it is an honor to be selected by them,” says the chief financial officer of a DAX-listed company.
Countries and companies have felt the power of this fund, too. Because of its politically dictated, ethical investment strategy, Norges Invest has repeatedly made headlines. The finance committee of the Norwegian parliament, which monitors the fund, decided unanimously that Norges Invest must get rid of its shares in energy and mining companies if the coal business accounts for more than 30 percent of their activities and profits. German utility RWE felt the impact of this regulation and lost the fund’s investment until its green subsidiary Innogy was launched independently on the stock market, renewing Mr. Slyngstad’s interest in the RWE group.
The exit from coal makes both environmental and economic sense, because sooner or later politics will intervene and damage the affected companies, in his view. Weapons and tobacco have long been on Norges Invest’s list of prohibited investments. It left armaments firms such as Textron, sold its shares in the Canadian mining company Barrick Gold, got out of tobacco companies such as Philip Morris and divested itself of its holdings in Boeing and Honeywell because they were said to be involved in manufacturing atomic weapons. Four Asian firms were blacklisted including Posco from South Korea, which burned down forests to plant oil palms. There is pressure from the parliament in Oslo for the fund to withdraw money in the future from companies that avoid paying taxes.
Since the diesel emissions scandal, Volkswagen has been taken to task by Norges Invest which, with more than 1 percent of shares, is one of the largest single stockholders of the Wolfsburg-based automaker. With its stake having fallen drastically in value, the fund announced that it will sue VW management. At the annual meeting, the representatives from Oslo even refused to exonerate the management board, calling the leadership structure in Wolfsburg “complex and problematic.”
The Norwegian sovereign wealth fund was once a relatively silent shareholder in companies, but today it actively makes its presence felt. “With our size, we carry great responsibility for effective company management,” Mr. Slyngstad says. This impacts other firms like Petrobras in Brazil, where not long ago corruption prompted a swift rejection by the fund.
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