OSLO Jan 21 In May 2012 the world's largest
sovereign wealth fund joined U.S. investors BlackRock and
Waddell & Reed to buy a $1.6 billion stake in motor racing's
Formula One. The people who had worked on the deal for months
were looking forward to celebrating their hard work.
Then they got an email from their boss. Under no
circumstances were they to be seen drinking champagne in the VIP
tribune at the Monaco Grand Prix.
"We have high expectations in terms of ethical standards,
also for ourselves," says Yngve Slyngstad, the head of the fund,
which invests $163,000 of oil and gas wealth for each man, woman
and child in Norway. "We cannot behave in a way that makes
people doubt that we have their best interests at heart," he
told Reuters last August. "Our duty as an asset manager is to
manage the people's money, public money. This means there is a
particular responsibility on us."
Norway has a population slightly larger than the state of
South Carolina but its government-run wealth fund has $833
billion in assets, making it one of the largest investors in the
world. It owns 1.25 percent of all the shares worldwide, 2.5
percent in Europe, and it has a unique ethical mandate. That
sees it avoid companies such as Walmart, which Norway deemed to
have breached "human rights and labour rights."
But the fund is underperforming. Since it started as a
sovereign fund in 1998, it has returned an average of just 3.41
percent per year, short of its target of four percent.
Now Slyngstad faces a political test. A new government, in
power since last October, is reviewing strategy at the fund,
which is officially called the Government Pension Fund Global.
To boost returns, the right-wing coalition is reviewing its
investment policy and organisation and may let it invest in
riskier assets. Some commentators worry that could hurt the
fund's ethical focus.
Already, politicians and the media in Norway pay very close
attention to the companies the fund invests in: It strives to
meet the ethical expectations of five million Norwegians and
heeds warnings from global campaigners such as human rights
activists, environmentalists, and trade unions. Even Bill Gates
has voiced an opinion.
At the fund's head since 2008 is Slyngstad. The 51-year-old
is employed by the central bank and his ultimate boss is the
parliament. Until last October, Norway, the world's number seven
oil exporter, was ruled by a coalition led by the centre-left
Labour party. Now the centre-right Conservatives are in an
alliance with the more radical Progress Party. Progress made
reshaping the fund part of its election promise; its leader, Siv
Jensen, says her party "has been fighting Socialism for 40
years", and she is now finance minister.
Change - albeit gradual and consensual - is likely. Some in
the Conservatives, whose leader Erna Solberg is Prime Minister,
have suggested dividing Norway's wealth into two competing
funds. Others, in Progress, want to break off three smaller
funds to focus on renewable energy and foreign aid, and to let
Norwegian finance groups manage some of the cash.
"The fund's investments have to be defendable politically,"
says Oeystein Doerum, chief economist at Norway's largest bank,
WHY PLAYING IT SAFE CAN HURT
Norway's finance ministry determines the broad assets
Slyngstad can invest in. Originally that was only government
bonds; corporate bonds, stocks and then real estate were added
later. An independent council of ethics keeps a blacklist of
companies whose shares the fund may not hold. Otherwise,
Slyngstad is in charge.
"Slyngstad is clear and loyal, which is very important for
the finance ministry," said Henrik Syse, the fund's head of
corporate governance between 2005 and 2007 and a fund adviser
Both government parties think the fund should be allowed to
pep up its performance by investing in foreign infrastructure.
Private equity investments are another possibility. Such assets
would be less easy to trade, but could yield more.
Fund commentators such as Sony Kapoor, a senior visiting
fellow at the London School of Economics who wrote a critical
study of the fund last August, argue that in a changing world,
the conservative approach has actually become a liability - the
fund places too much emphasis on investing in developed
The fund's mandate says investments must be balanced
geographically: At the end of 2012 about 48 percent was in
Europe, 15.5 percent in Asia-Pacific and 35.6 percent in the
Americas and Africa. The remainder was in bonds issued by
international organisations, which the fund no longer buys.
"The fund's approach ... has now become a bet on the future
of OECD economies being bright," Kapoor wrote. "This locks in
low returns and exposes the fund to concentrated risks of ageing
populations and over-indebtedness faced by many mature
economies. The fund has inadvertently taken on a lot of risk,
for very little return."
Kapoor says the mandate should be changed so that the fund
can take advantage of long-term growth in emerging markets.
"Not only will this be good for Norway, it will also enable
faster growth in poorer economies and create millions of
much-needed jobs," he says. It's a line echoed by Bill Gates,
the Microsoft founder turned philanthropist. He has argued that
Norway, as one of the richest countries in the world, can afford
to help out people in poor countries in Asia and Africa.
The fund is already increasing its exposure to emerging
markets. The share of European investments should be reduced to
41 percent gradually, the finance ministry said in 2012. "We
invest according to our mandate as defined by the finance
ministry,"says fund spokesman Thomas Sevang.
A PUNCTUAL BACK-PACKER
People who know Slyngstad, who declined to be interviewed
for this story, say he combines a close capacity for detail with
a rapid, receptive mind.
A bald, goateed Oslo native, he joined the central bank in
1998 from insurance firm Storebrand and was the fund's head of
equities before taking the top job. He has four master's
degrees, competed in the sport of curling for Norway in the
1980s, and earned $970,000 in 2012.
Fund staff say his message about the Monaco Grand Prix is
typical of a man who leaves nothing to chance, something which
shows in his time-keeping. He presents results every quarter at
a regular 10am news conference, held in a cavernous room in the
basement of the central bank. At 10:00:00 sharp he begins
reading from a press release, in Norwegian and in a fast, low
"He is a bit like a machine gun ... information comes at you
very quickly," Syse said.
From time to time, he likes to escape. In his late 20s
Slyngstad backpacked around Asia, Latin America and Africa,
according to media reports. In 1990 he retreated for six months
to a fisherman's cabin in Norway's Arctic north to study the
work of the German philosophers Martin Heidegger and Georg
Wilhelm Friedrich Hegel.
Studying philosophy challenges one's thinking, he once said.
"It was useful to understand how to handle risks today."
He certainly knows pressure: He became the fund's chief
executive in the middle of the global financial crisis, the year
of its worst performance. It lost 14.5 percent of its value in
the third quarter of 2008.
When Slyngstad took over the fund was already boosting its
exposure to risk. It increased the share of assets it could
invest in stocks to 60 percent from 40 percent. Critics at the
time argued that this was too big a gamble, but it paid off.
The fund returned 12.7 percent on its investments in the
second quarter of 2009, its best ever performance, as world
stocks bounced back.
Since then performance has been less volatile and in the
fund's latest quarter, it returned 5.0 percent. During
Slyngstad's tenure so far, its annual return has averaged 3.14
percent, just below the overall average.
"He is extraordinarily talented and has done a very good
job, both with the way he handles the fund's everyday
operations, but also in his ability to think in new ways," said
Sigbjoern Johnsen, a Labour politician and Norway's finance
minister until October.
Adding more risk to the fund's portfolio would not be
The private equity industry - which borrows heavily to buy
businesses - has a reputation for ruthlessness. Many companies
say they are improving their governance, but upsets could be
damaging. Infrastructure projects in the developing world often
attract corruption. Earlier this month, four Norwegian
fertiliser executives were indicted on charges of bribery in
Libya and India - an accusation broadly accepted by their
employer without blaming any individuals - which illustrates
reputational risks in emerging markets. Could Norway's fund
invest while sticking to its strict ethical standards?
The fund already talks with the 7,500 firms it invests in on
topics from the equal treatment of shareholders to children's
rights. Slyngstad himself is responsible for a focus on
children's rights: Syse says the idea came up during a chat the
two were having. How, Slyngstad asked, could a fund that invests
for future generations make money out of exploited children
Between 2008 and 2011, the oil fund published reports on how
particular investments fared in terms of child labour. In 2011,
it even named companies it felt were best at managing and
reporting the risks of child labour - these included Walt
Disney, Ericsson and Hennes & Mauritz.
In addition to ethical policies drawn up by the fund itself,
the finance ministry forbids investment in firms that produce
nuclear weapons, anti-personnel landmines, cluster bombs or
tobacco. Nor can the fund support companies involved in severe
environmental damage, gross corruption or "serious and
systematic human rights violation," such as forced labour, the
worst forms of child labour, murder or torture.
An independent council of ethics makes recommendations to
the finance ministry on what companies should be excluded. The
five-strong council follows media reports about alleged abuses,
commissions research and deals with reports made by
Some 60 firms are currently out of bounds for Slyngstad and
his team. Walmart was ruled out in 2006 for employing minors
against international rules, allowing hazardous working
conditions at suppliers, and blocking workers' efforts to form
unions. Walmart does not comment on any shareholders that buy or
sell its stocks. "Our company provides a range of jobs, and
along with training and development, our associates have strong
career opportunities. We are proud of what our associates
achieve and the opportunities that we provide around the world,"
said Walmart spokesman Randy Hargrove.
Today, the oil fund's council of ethics is examining a range
of issues from illegal or unregulated fishing to human rights
violations in Myanmar or the Democratic Republic of Congo, its
head told Reuters.
Among proposed changes to the fund is a plan to scrap the
council of ethics' independence. A government commission has
found it may move more quickly if it was brought under the
central bank's control. That possibility has alarmed activists,
who argue the fund needs a strong and independent body to screen
firms and make recommendations.
Critics also argue that the fund is already short of
resources. It used to have a section working on corporate
governance, for instance, with about 10 people dedicated to the
issue in 2007, Syse said. That was scrapped when the head of the
section left in 2012, and its staff integrated into equity
The aim was to enhance their direct contribution and
efficiency, says fund spokesman Sevang.
Whatever shape or resources the fund has in future,
balancing risks and rewards will always be a tall order.
"The fund has to be able to defend its decisions politically
as well as financially," said Steinar Juel, chief economist at
bank Nordea. "The fund could be undermined if it is perceived to
make investments that are politically unacceptable."