THE GOVERNMENT Pension Fund-Global, Norway’s sovereign wealth fund and the world’s third-largest, was valued at 2.08 trillion kroner ($331 billion) at the end of March 2009. Also called the oil fund, because it invests in oil money abroad to avoid stoking domestic inflation, this fund could soon be boosting investments in emerging markets such as India, China and Russia. In fact, the fund has already raised the ceiling that limited stakes in companies to between 5 to 10 percent.
Senior officials of the fund have said that it plans to also invest in the real estate sector, adding that the company is in the process of raising stock holdings from 40 percent to 60 percent, for better returns. “Unless the economic outlook goes from bad to considerably worse, the fund will record a substantial excess return in the years ahead,” Norges Bank Chairman Svein Gjedrem said in a recent statement.
“The fund is prepared to retain ownership of its illiquid assets until they mature in a few years’ time,” Gjedrem said in his speech to the investors, adding, “Investors such as the government pension fund will earn more in the long term because of these fluctuations in equity values.”
According to data compiled by the Sovereign Wealth Fund Institute and Bloomberg, the Abu Dhabi Investment Authority is the biggest sovereign wealth fund, followed by the Government of Singapore Investment Corp. The Norwegian sovereign wealth fund comes in at third place.
Fund officials said it was looking at investments in markets in India and China because of the steady growth in the region.
“The markets there have the capacity to ensure decent returns,” an official told TEHELKA, adding the value of the fund fell 4.8 percent in the first quarter, widening a record loss at the end of last year. Meanwhile, the mainland economy, excluding oil, gas and shipping, could shrink 1.4 percent this year — before returning to growth of one percent in 2010, raising the previous estimates for a 1.7 percent contraction and 0.9 percent growth respectively.
The fund, run by the country’s central bank and based on guidelines set by the country’s finance ministry recouped some losses in March after stocks in the US and Europe posted their biggest monthly gains since 2003, after a thaw in credit markets. But its renewed interest in markets such as India, China and Russia follows after the Norwegian Finance Minister Kristin Halvorsen said the fund had very poor investment returns last year.
“The area where we have had the most public criticism, instead, concerns active management. There is still broad political support for the fund’s long-term investment strategy,” Halvorsen said in a speech posted on the ministry’s website.
Halvorsen also said the fund is reducing the number of external mandates, or mandates given to money managers that are not employees of Norges Bank Investment Management.
“We will, in the coming year, have a thorough assessment of whether, and what kind of, active management we want to have,” Halvorsen said, adding: “This assessment, followed by public consultation, will provide the basis for a robust strategy that can stand the test of time.”
The Norwegian government will also start a research project with consulting company Mercer to assess the impact of climate change on financial markets and its implications for asset allocation.
“I believe it is prudent for fiduciaries of financial institutions to consider the implications of climate change for strategic asset allocation,” said Halvorsen, adding: “Traditional strategic asset allocation modeling approaches have not taken climate risks or opportunities, sufficiently into account. This project seeks to address that gap.”
A number of Indian hydrocarbon and infrastructure companies are seeking both national and global investment. Upstream, the world’s biggest oil and gas newspaper, said recently that Oil India has already started talks with bankers for an initial sale of shares as New Delhi gets ready to sell stakes in state-run companies to generate revenue and reduce a widening fiscal deficit.
OIL INDIA had postponed its share sale in 2008 because the global economic crisis damped investor appetite. New Delhi expects to generate $237.2 million in the financial year that began April 2009 from such stake sales.
Oil India plans to sell up to 26.4 million shares, or about 11 percent of its equity because it needs the money earned by selling the stake to fund oil exploration, field development and diversification into downstream products.
The fund is showing interest in Oil India, which plans to disinvest by selling 11 percent of its equity
“We are working on it,” Oil India finance director T Ananth Kumar told an international wire agency, without specifying whether the company would start the share sale process by September 10, the deadline set by the Securities & Exchange Board of India, based on an earlier application filed by the company.
Kumar reiterated that the share sale was a long process, adding: “We have to discuss with bankers, the ministry of petroleum and then with the disinvestment panel. So it is difficult to commit to a date.”
But if the Norwegian sovereign wealth fund is willing to invest in companies such as Oil India — as well as other Indian companies — the date of sale will not matter, as long as the divestment is at a good price and brings in some much-needed funds so that companies in the oil sector can expand operations. That would be a valuable divestment indeed.