The world's second-largest wealth fund keeps a low-key profile while succeeding where others have failed.
Norway wealth fund reflects leadership's attitudes
Every morning after dropping his children off at school, Yngve Slyngstad heads to the fifth floor of Norway's central bank and monitors how the world's second-largest sovereign wealth fund is doing with its investments.
Today, it makes for very good reading. It is worth more than US$430 billion (Dh1.58 trillion) and has never been higher since its creation in 1990. The fund, in which Norway saves its oil and gas revenues from the North Sea, is so big it could pay Dubai's estimated $80bn debt five times over. It owns more than 1 per cent of the world's shares, is Europe's biggest equity investor and has 1.7 per cent of all listed European companies.
You would not know it, though, by stepping into the office of Mr Slyngstad, the fund's chief executive. In typical Nordic style, there are few outward signs of wealth ? just standard office furniture ? while the view from his desk overlooks Oslo's low-rise rooftops. While Norway might be the world's fifth-largest oil exporter, there isn't a skyscraper in sight. Mr Slyngstad is as low-key as his office. He spoke quickly in a low voice during an interview, as if keen to get back to work. He became head of the fund last year and oversees a team of 217 permanent employees. Previously the head of equities for the fund, he joined the central bank in 1998 from the Norwegian insurance company Storebrand. His fund's assets reached record levels after Mr Slyngstad bought $175bn worth of equities when world stock markets crashed earlier this year.
"It was good timing," he says, adding that he does not think the fund will ever reach its current highs. "A few years back, we thought the fund would stop somewhere at that level [of 1 per cent of world stocks]. Since then, oil prices have been consistently higher and, aside from the recent dip, equity markets [have increased in value]." That's not to say he has always been a businessman. Mr Slyngstad has backpacked around Asia, Latin America and Africa, paying his way by working in Norway for six weeks every year. He retreated to a fisherman's cabin in the Arctic north of Norway for six months in 1990 to study the work of the German philosophers Martin Heidegger and Georg Wilhelm Friederich Hegel. "It was useful to understand how to handle risks today," he says.
He then studied finance at Kobe University in Japan, between 1991 and 1993, before returning to Norway just as the country's oil wealth was picking up. Despite its size, the Norwegian fund is still dwarfed by the Abu Dhabi Investment Authority (ADIA), the world's largest sovereign wealth fund, worth $627bn according to the California-based SWF Institute. The Swiss bank UBS puts the Norway fund in second place behind the ADIA, while the SWF Institute puts it in third place after the ADIA and Saudi Arabia's fund.
The Norwegian fund is getting attention for policies that are not often associated with sovereign wealth funds, like its focus on transparency. Mr Slyngstad presents the fund's performance at a press conference every quarter. Its holdings in nearly 8,000 companies are detailed in the annual report. It lists policies it has pushed for on the boards of companies - for instance asking for the chairman not to be chief executive at the same time.
Some consider Norway's transparency policy a model for other sovereign wealth funds to follow. The European Commission president Jose Manuel Barroso calls it a "gold standard". The focus on transparency is a political decision, with the ultimate responsibility lying with the Norwegian finance ministry. Though it causes more work and brings more pressure, transparency makes for better performance.
"In the public sector - we are a public fund so we are in the public sector - you need to create some mechanisms for [performance], since we are not exposed to the competition with other fund managers, although we have the competition of the market place," Mr Slyngstad says. "Transparency is good because it makes us more competitive." Public pressure was perhaps never higher than when world markets crashed. The fund lost 14.5 per cent of its value through until September of last year, and the third quarter of last year was the worst in the fund's 19-year history.
The financial crisis was of course to blame, but it happened while the fund was expanding the share of equities in its portfolio from 40 per cent to 60 per cent. Critics argued that the fund was gambling with the country's piggy bank and should not have taken so many risks. Mr Slyngstad says the strategy was vindicated in the end. "We presented our annual report on March 11, when the markets bottomed around March 9-10," he says. "So we hit the absolute nadir when that was presented - so naturally there was quite a lot of stress at that time.
"If you look at subsequent developments, people realised that we did buy quite a lot of equities at a period when, in retrospect, it looks quite favourable. I don't think you will find people saying that the strategy has been too risky." The Norwegian fund is also attracting interest because of its ethical stance. It avoids, among other things, companies involved in child labour, violations of human rights or production of nuclear, chemical or biological weapons. Nearly 30 firms have been kicked off its rolls so far, most recently in September, when it sold its holdings in the Israeli group Elbit Systems after Elbit provided a surveillance system for the separation wall in the West Bank.
Today the fund's ethical policy is expanding to be more active on environmental issues - ironic perhaps for a fund based on oil and gas revenues - by pushing climate change on the agenda of the energy and utility companies in which it holds stakes. Leaders at relevant companies will therefore receive in the mail the oil fund's list of investor expectations on climate change. These include analysing the impact that climate change has on the companies' activities, measuring the greenhouse gases they emit and setting clear targets for reducing them. If the companies do not act, "we may work with others to change the boards' composition, put the issue on the agenda of the general assembly, make shareholders' proposals", says Mr Slyngstad.
"We are an investor with a 30-year horizon," he says. "We think that in the long run the profitability of companies will be affected by how these bigger issues are handled. We are a universal owner in the sense that we own stakes in nearly 8,000 companies. The action in one company, which may be profitable in one company - may affect the profitability of other companies in the future. This is straight in line with maximising the return of the fund."
It is also a political decision, just like the ethical stance. The Norwegian government is keen to use the fund's financial power to play a greater international role on fighting climate change. It pledged last year to donate $1bn to Brazil to stop the deforestation of the Amazonian jungle. email@example.com