Outflows from Norwegian oil fund will not change strategy, says NBIM
Falling inflows from oil revenue to Norway’s leviathan Government Pension Fund Global (GPFG) will not change the NOK7.1trn (€762bn) sovereign wealth fund’s investment strategy or its need for diversification, according to the fund’s second in command.
Trond Grande, deputy chief executive at Norges Bank Investment Management (NBIM), which manages the GPFG, said in an interview with IPE: “The fund and its investment strategy are basically the same, regardless of growing much more or when there are withdrawals from the fund.”
The Norwegian government withdrew money from the GPFG for the first time in the first quarter of this year, taking NOK25bn out of the fund in the period.
In average terms, the fund’s inflows have been climbing every year between 1999 and 2013, from which point they have declined.
Norway’s financial fortunes have been hit by the fall in the global price of oil, with Brent crude oil prices having collapsed in the past two years to lows of around $30 a barrel in February this year from around $115 at the beginning of 2014.
Asked whether the prospect of lower oil revenues reducing future inflows to the fund – and possible repeats of the latest withdrawals by the government – made the fund’s push towards increased asset-type diversification less urgent, Grande said: “No, I don’t think the two things really play together.”
The changes in inflows and outflows seen so far are basically “just around the margins,” he said.
“So the investment strategy will be, for all practical purposes, the same, until Parliament decides different,” Grande said.
The Norwegian Parliament’s Standing Committee of Finance and Economic Affairs on Friday held an open hearing to discuss the Finance Ministry’s white paper on the management of the GPFG, which contains various recommendations for change, including an increase in the real estate allocation to 7% from 5%.
In its advice to the minister of finance prior to the white paper’s being drafted, NBIM recommended in December that the real estate allocation be lifted to 10% and that the fund be allowed to invest in unlisted infrastructure for the first time.
Permission to take on infrastructure was declined for the time being by the ministry in its white paper.
Asked whether the fund were now becoming a more active owner of companies, Grande said: “Yes, that’s absolutely what it is – we’re not an activist investor, we’re an active investor and we’re not a passive investor – we’re in the middle there.
“It means we take our fiduciary duty seriously, as we are one of the largest shareholders of many of these companies, particularly in Europe, and it goes hand in hand with good governance and good long-term returns.”
In its first-quarter report, published on Thursday, NBIM said the GPFG had done more work between January and March on standard setting and expectations for the companies in which it invests.
It said this work included publishing a new expectations document on human rights and updated voting guidelines with the aim of making the fund’s voting more principles-based and predictable – taking account of “company-specific factors” and supporting the fund’s long-term strategy.
“So yes, we are active and engaging with the companies with the aim to achieve the highest possible return in the long run,” Grande said.