May 29, 2008 / 3:31 PM / 11 years ago

Norway oil fund big buyer of stocks, eyes new deals

OSLO (Reuters) - Norway’s $400 billion oil fund will within weeks own more than 1 percent of European stocks, sees market turmoil as a buying opportunity and has set up a division to do private equity-type deals, its chief told Reuters.

An aerial view of the Oseberg oil platform in the Norwegian sea, April 19, 2007. REUTERS/Helge Hansen/Scanpix

Yngve Slyngstad said on Thursday that the world’s second largest sovereign wealth fund was a “huge buyer” of stocks over the first quarter in a planned shift towards more equities.

“We are just weeks away from crossing 1 percent ownership on average in Europe (in equities), and our ownership in the rest of the world is months, not weeks, away from crossing half a percent,” Slyngstad said in an interview.

The Government Pension Fund — Global, known as the “oil fund”, invests Norway’s oil wealth in foreign stocks and bonds to save for future generations. It is shifting to a 60 percent allocation in stocks from 40 percent, and held 48 percent in equities by the end of the first quarter.

Just over 50 percent of the equity portfolio is in Europe.

Surging oil prices mean the fund gets “considerably more” new money to invest than the roughly $1 billion per week forecast by the government.

“So not only have we got this huge cash flow that we would have to invest anyway, but we are also buying equities and selling bonds to make the transition,” said Slyngstad, age 45.

Though it had its poorest quarter in its 10-year history in January-March this year, the fund took advantage of lower equity prices, volatility and uncertainty over the period, he said.

The fund shrank by $15 billion in the first quarter, despite new transfers, hit by a 12.7 percent negative return on its stock holdings amid a global selloff.

“Our portfolio has had a relative return below our benchmark for the past three quarters, but still we have come through this with very little pain compared to quite a few others in the markets,” said Slyngstad. “We have had subprime exposure that is minimal, less than 0.4 percent of the fund.”

“We regard volatile markets as ... an opportunity,” he said.

Slyngstad said the “amazing turbulence” on global markets was partly caused by internally-generated systemic risks, including a possible underestimation of liquidity risks by investors and their risk models.

“You can see that quite a few of these effects have not disappeared and the reduced liquidity is to a large degree still there in the markets,” he said. The crunch hit its bonds, especially U.S. securitized debt, which it was unable to trade.

NEW PROFILE

Slyngstad said the fund has been approached to take part in “quite a few deals” and that he has formed a special division to invest larger, more concentrated equity stakes in companies.

“That would represent a new departure for the fund — concentrated large ownership, quite likely for a longer period — using our size and our longer investment horizon,” he said, referring to the new Capital Strategy division.

“If for some reason we would participate in a recapitalization of a large bank with a large stake, basically this group would be doing it,” he said without elaborating.

“A fund of our size is quite likely to have been shown quite a few deals ... I wouldn’t say that we have not participated, but I won’t confirm that we have either,” he said.

To facilitate such investment, Slyngstad asked the government to let the central bank-run fund take stakes of up to 15 percent in individual companies, up from a 5 percent limit. The government decided on a 10 percent limit.

Eventually about 10 percent of the fund’s assets, including 5 percent planned in real estate, could be managed this way.

He said the fund could invest in commodities, including oil, but has not done so since its purpose has effectively been to diversify Norway out of oil and gas, its main export.

Slyngstad declined to be drawn about the growing role of sovereign wealth funds globally and measures planned by some countries to force greater disclosure from them, saying those were topics for politicians.

As for the Norwegian fund, already hailed as a model of openness for other resource-rich countries to follow, he said “the direction is ever more transparency”.

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