The Pushy Pip-Squeak Behind a Massive Investment Fund
WHY YOU SHOULD CARE
Because if the world’s biggest sovereign wealth fund continues to behave itself, it might just change the world of investing.
With a population that’s tinier than the state of Minnesota, fjord-filled Norway is nobody’s first guess for investment colossus. But in fact, it’s home to the biggest wealth fund in the world. Meet Yngve Slyngstad: bald, goateed and understated. Like the rest of us, he has recently watched the stock market gyrate up and down (and down a whole lot more). Unlike the rest of us, he is the guy in charge of deciding where nearly $1 trillion goes.
In some ways, his sovereign investment fund seems to own a piece of everything — or, at least, an average of 1.3 percent of every public company in the world. But in the kind of move that could be a lesson for us weak-kneed investors, Slyngstad, the fund’s CEO, has been keeping Norway thick with China’s investments despite the country’s spectacular mess, while shifting from its nearest continent. Marthe Skaar, the spokeswoman for Norway’s Government Pension Fund Global, tells OZY it’s part of a long-term strategy to remain diversified, and Slyngstad has been actively engaging with companies — that is, telling them what to do. “You ought to sit up and take note if you are the management of those companies,” says Richard Bennett, president of ValueEdge Advisors, which advises institutional investors.
Maybe you missed the spawning of this quiet colossus. After all, it’s been around only 20 years — younger than most of those other big, well-known, oil-based funds in the Persian Gulf — and began with just $5.6 billion. “We started out as a small fund,” says Skaar. But each year, Norway’s government plows in more money from the sale of oil, while its underlying investments grow faster than the 4 percent that the government takes to help fund its national budget. Presto, change-o: It’s since grown to become over 150 times bigger — yes, even after the recent sell-off in the market, which has lopped off tens of billions in value but still leaves around $842 billion today — or an average of around $166,000 per Norwegian citizen. Sure, it’s not quite $1 trillion, but that’s where the fund thinks it’ll get within three years.
It’s rare for sovereign funds like these to disclose details on this level.
These days, Slyngstad and his fund’s team are buying up, well, seemingly everything, including office buildings in Times Square and shares on buildings along London’s Regent Street and Savile Row, famous for its tailors. They’ve also plowed billions into the Chinese stock market — oops! Actually, the fund showed a good profit as of June and has said it has a long-term bet on China, despite its recent murky market and corporate governance performance. Which is sort of the opposite of the oil fund’s philosophy. In fact, the fund lays out every little thing it does in excruciating detail on its website, including updates to its value every single second. Check it out here if you’re into hypnosis by numbers.
The good governance crowd loves this, of course, as it’s rare for sovereign funds like these to disclose details on this level. Some have gushed over what the fund has done, including the way it’s brought intellectual firepower to how its team manages the investments in a quiet, Norwegian sort of way. “It is all very low-key,” says Christian Strenger, director of the German mutual fund manager DWS. By order of the government, it’s sold off companies like Wal-Mart (over labor practices) and recently ditched four big Asian companies (because of environmental destruction), despite doubt that divestment encourages good behavior. Indeed, it’s also shedding investments in coal companies. “Good standards are the best way of safeguarding our investments and assets in the longer term,” Skaar says.
There’s more at play here than just do-gooder intent. A forthcoming article in The Review of Financial Studies found that when activist shareholders in a group of companies were involved, they boosted investment returns by an average of 2.3 percent annually over a 10-year period — beyond whatever return companies might offer — compared to companies without that kind of intervention. This is contingent on big shareholders, like CalPERS, the California pension fund, getting involved in environmental, social or governance issues. Robert Monks, a corporate governance expert and advocate, says Slyngstad and his team over at Norway’s fund have become more active investors in recent years because it’s a “win-win strategy for maximizing the value of their holdings.”
But not everyone buys into all of their methods. The Hermes Investment Group, a British pension manager that pioneered shareholder engagement, hasn’t followed the Norwegian fund down the path of publicizing in advance how it will vote at shareholder meetings, which has frequently been against management. “That would be premature,” says Leon Kamhi, director at Hermes. Instead, Hermes tries to influence management behind the scenes, before the vote.
Still, Monks hopes the Norwegians will step up their game even further and go beyond moving around money or voting for this or against that at shareholder meetings. Next steps might, for example, involve putting their own people on the board to help a corporation change direction. Only a big, determined investor behind a big, determined fund could get away with this, of course — but who better than the world’s biggest?