Norway’s $810 billion sovereign wealth fund, the world’s largest, is finding its record size is becoming a hurdle that’s complicating its investment decisions

November 2, 2013 Leave a comment

World’s Biggest Wealth Fund Says Record Size Is Posing Hurdles

Norway’s $810 billion sovereign wealth fund, the world’s largest, is finding its record size is becoming a hurdle that’s complicating its investment decisions. “The challenge that we have, and we have already experienced, is the size,” Petter Johnsen, chief investment officer for equities at fund, said today after a speech in Gjoevik, north of Oslo. “The fund has grown very fast during a short time.”Before taking office after September elections, Prime Minister Erna Solberg said she would consider splitting up Europe’s largest equity investor to help make it more competitive. The fund, also known as the Government Pension Fund Global, has quadrupled in size since 2005 and will grow another 50 percent by 2020, according to government estimates.

“There’s a strong need to renew ourselves relative to how we think about investments strategies, and we have to think a lot about the special characteristics of the fund: the size, its long-term outlook, how we can take advantage of that to a larger extent.”

The fund returned 5 percent in the third quarter, it said on Oct. 25. Its stock holdings advanced 7.6 percent while bond investments climbed 0.3 percent. Real estate investments returned 4.1 percent.

Norway generates money for the fund from taxes on oil and gas, ownership of petroleum fields and dividends from its 67 percent stake in Statoil ASA (STL), the country’s largest energy company. Norway is western Europe’s largest oil and gas producer. The fund, which had an average holding of 1.2 percent of the world’s listed companies at the end of 2012, invests abroad to avoid stoking domestic inflation.

Government Guidelines

The investor, which gets its guidelines from the government, held 63.6 percent in stocks at the end of September, up from 63.4 percent in the second quarter. Bond holdings slid to 35.5 percent from 35.7 percent while real estate accounted for 0.9 percent. The fund is mandated to hold 60 percent in stocks, 35 percent in bonds and is building up to 5 percent in real estate, while allowing for fluctuations. It mostly follows global indexes and has some leeway to stray from those benchmarks.

Yngve Slyngstad, chief executive officer at the Oslo-based investor, said last week the fund won’t use new inflows to buy more stocks as he predicted a “correction” in prices.

The fund is still “rebalancing” its investment focus as it shifts away from Europe, Johnsen said. The strategy will remain one of “counter-cyclical” purchases, he said.

To contact the reporter on this story: Jonas Bergman in Oslo at jbergman@bloomberg.net

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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