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Thursday, June 20, 2024

Oil fund to start flexing its muscle

Norway’s sovereign wealth fund, popularly known as the “Oil Fund,” has reported another year of strong growth and impressive returns amounting to its next-best result ever. Now the fund’s bosses reportedly want to take a more active role in the companies where the fund is a major investor.

Norway's oil industry continues to pump up profits that are placed in the oil fund and invested around both at home and around the world. PHOTO: Statoil
Norway’s oil industry continues to pump up profits that are placed in the oil fund and invested both at home and around the world. PHOTO: Statoil

The fund logged an overall return of 13.4 percent in 2012, broken down by 18.1 percent on its stock portfolio, 6.7 percent on its interest-bearing investments and 5.8 percent on its real estate holdings. As some Norwegian media reported, the enormous fund used to save up Norway’s oil wealth for future generations earned an average of NOK 1.2 billion every single day last year.

The fund currently invests 60 percent of its assets in securities, 35-40 percent in interest-bearing investments and up to 5 percent in real estate. The fund’s investments are also subject to ethical standards by order of Parliament, with criticism erupting from time to time over the fund’s holdings. The finance ministry’s ethical reviews have led to the fund selling off stock when companies fail to perform in accordance with ethical standards, while the fund also has been criticized for allegedly unethical investments, for example its holdings in steel company Posco which newspaper Dagsavisen has reported is currently accused of harming the environment and forcing residents to move from their homes.

The oil fund has ranked for several years now as one of the world’s biggest and a huge investor. It now also ranks as one of the largest shareholders in several of the world’s largest companies, with ownership stakes of 5 percent or more in 34 large companies. What’s essentially a pension fund, formally known as Statens pensjonsfond utland, now ranks as the second-largest shareholder in, for example, food giant Nestlé. It holds 9 percent of the shares in US investment company BlackRock Inc.

Oil fund boss Yngve Slyngstad threw a very nice party in Singapore. PHOTO: Norges Bank/Nancy Bundt
Now oil fund boss Yngve Slyngstad wants to be a more active owner in companies where the fund is among the largest shareholders. PHOTO: Norges Bank/Nancy Bundt

Newspaper Dagens Næringsliv (DN) reported over the weekend that oil fund chief Yngve Slyngstad is gearing up to be a more active owner, given the oil fund’s holdings and clout.

“It’s necessary for us to take on active ownership,” Slyngstad told DN. “And in companies where we own 5 percent of more, where we’re among the five largest shareholders and where we have a big investment, NOK 5 billion or more, we must be more active in the election process around board members.”

Slyngstad noted that “the board members are, of course, our representatives.” In countries where the election process is formalized, as it is in the Nordic countries like Finland, Sweden and Denmark, “it will be of interest to us to sit on the election committee in companies where we have such large interests.”

Slyngstad already has drawn up a list of companies where he is eyeing greater influence. “In the Swedish companies, it’s only Svenska Cellulosa and Volvo where we have such large investments that we feel it would be natural (to influence election of board members),” Slyngstad told DN. Among Finnish companies he mentioned UPM Kymmene and Stora Enso, and said board influence was likely to be exercised “already this year.”

Companies elsewhere don’t necessarily have a formal committee that proposes board member candidates. “But in practice there’s something similar, sort of a round of hearings among the biggest shareholders,” Slyngstad said. “And we see that in more and more companies, we are among the five biggest shareholders, and then the chairman takes contact with us to see if we have any standpoints, not necessarily on specific names but on the process. And we have opinions about the process.”

Grace Reksten Skaugen, the highly educated shipping heiress who sits on several major boards herself and is chairman of a Norwegian institute for board members, said she thinks the companies in which the oil fund has a major stake will welcome the fund’s more active role.

“I know that in many countries, they like to see the largest and most long-term owners on the election committees,” Skaugen told DN.

She said the most important thing for the fund is that it ensures good ownership involvement and that company values are in line with the profile the fund wants to have. Agreeing with her was Ingebjørg Harto, who leads the NUES commission dealing with ownership involvement and management that was formed by the Oslo Stock Exchange, the banking industry’s trade association FNO and Norwegian employers’ organization NHO.

“Active ownership is always much better than passive ownership,” Harto told DN. “When an investor has some thoughts about the investments made, as the Oil Fund has, it’s correct to use the possibilities you have as a large investor to have influence over who sits on the board.”

Views and News from Norway/Nina Berglund

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