The Government Pension Fund ready for new markets

'We are ready to invest in new geographical areas as soon as these countries establish well-functioning markets,' said Yngve Slyngstad, head of the Norwegian Government Pension Fund at the Lehmkuhl Lecture. At the same time, he warned of losses of up to NOK 1,500 billion for the fund.

01.10.2013 - Lisbeth Heilund

The Norwegian Government Pension Fund, popularly known as the 'oil fund' in Norway, is worth NOK 4,700 billion. This means that each and every Norwegian has a share of around NOK 1 million in the fund.

At the annual Lehmkuhl Lecture, Yngve Slyngstad presented different strategies aimed at ensuring that future generations will also benefit from this fund.

Spread the risk

The most important measure is to spread investments among other things by moving into new markets.

'In the fund's first decade, more than half of the investments were in Europe, but we now aim to have around a third in each of the the world's main regions, Europe, America and Asia. We also want to increase our investments in new markets as well-functioning capital markets are established in these countries,' said Slyngstad.

The fund also spreads its investments across many companies. To date, the fund has invested in more than 8,000 companies in over 70 countries. Several investment mandates have also been delegated to external managers in different parts of the world's financial markets.

'The external mandates invest primarily in smaller companies and in emerging economies, where we don't have an opportunity to build expertise ourselves,' Slyngstad said.

Big potential losses

Despite spreading risk, Slyngstad warned that there could be periods in the time ahead in which the value of the fund will fall significantly.

'With NOK 5,000 billion in the fund, and with the current distribution of assets, a year on a par with the poorest year in the last century would lead to a fall in value of just under 30% or almost NOK 1,500 billion.

A year corresponding to 2008 - the year of the financial crisis - would reduce the fund's market value by NOK 1,200 billion. That's as much as a whole Norwegian national budget.

Slyngstad said that financial crises can also create opportunities for a fund with a long-term perspective. From autumn 2007 to early summer 2009, the fund purchased shares for NOK 1,000 billion.

'What we're left with after the financial crisis is not historically high losses on share investments, but a substantial gain and a story about a small country with less than 0.1% of the world's population buying up a 0.5 holding in all of the world's listed companies in less than two years,' said Slyngstad.

Wants to influence the companies

The fund has been criticised on several occasions for the companies it has chosen to invest in. According to Slyngstad, the size of the fund means that it has more influence on individual companies than its ownership interest alone would indicate. He also refuted that withdrawing from companies was a good solution.

'Our goal is to vote at all the AGMs of companies in which the fund owns shares, and to have a good dialogue with the boards of directors of our biggest investments. Withdrawing from companies is seldom a better alternative than endeavouring to improve their corporate governance,' said Slyngstad.