Oil fund to curb credit bureau power
November 1, 2011
The head of Norway’s huge oil fund wants to rein in the powerful credit bureaus that seemingly can determine the destiny of European countries in crisis, along with returns on the fund itself. The move comes after the fund reported the biggest losses in its 15-year history.
Newspaper Dagens Næringsliv (DN) reported over the weekend how current rules require that the oil fund sell off debt instruments issued by foreign governments if the credit rating of the countries involved is downgraded by one of the major credit bureaus. That’s what contributed to the huge losses that the oil fund, officially a pension fund fueled by oil revenues that only invests overseas, realized in the third quarter. The fund’s returns fell by 8.8 percent.
“We don’t think the credit bureaus’ evaluations should determine whether a country or company shall be outside our portfolio,” Yngve Slyngstad, who leads the oil fund’s management, told DN. He wants the fund to be able to determine the credit-worthiness of countries in Southern Europe itself.
Slyngstad told DN that fund officials are now working with criteria to build up their own internal credit evaluation to overrule the credit bureaus like Moody’s, Standard & Poor’s and Fitch. All of them have been the targets of criticism in recent years for failing to recognize the bad loans that first created the finance crisis. DN reported that the credit bureaus declined comment on the oil fund’s move.
The bureaus’ downgrading of national debt instruments can be problematic for managers of huge amounts of capital like those running the oil fund. Limits are put on how much commercial paper a fund can own under a certain rating level, for example. National debt instruments, meanwhile, were always viewed as low-risk and therefore safe investments of pension funds. When they’re downgraded and sell-offs are forced, it can create losses and possibly unnecessary reactions.
“It’s not certain that it was correct to sell off all Greek debt when Greece was downgraded,” Slyngstad told DN. The fund still has around NOK 2.6 billion in Greek debt and now the EU has called for private lenders to forgive half their Greek debt. It remained unclear what that will mean for the oil fund.
Slyngstad told newspaper Aftenposten, meanwhile, that neither he nor his staff has had any contact with top leaders at the EU, who have been eyeing Norway’s oil fund as a major source of capital to help ease the euro crisis. “We haven’t been part of the process,” Slyngstad sid. “We haven’t been asked and we have not been in contact with the players in Brussels.”
Views and News from Norway/Nina Berglund
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