Norway’s oil revenues that are pumped into the state’s huge Oil Fund are suddenly a source of concern, with a rising chorus of critics lashing out at how they’re being managed. Economists have joined some politicians in calling for more control over how funds are invested.
The criticism reached a crescendo on Wednesday after the fund’s boss admitted to newspaper Dagens Næringsliv (DN) earlier this week that he was “not happy” with the status of a stake in an as-yet unlisted company that controls the rights to Formula One racing. Yngve Slyngstad, chief executive of the unit of the central bank that manages the fund (Norges Bank Investment Management, NBIM), is left with NOK 1.8 billion of the Oil Fund’s money sitting in unlisted shares in a company that’s based in a tax haven and whose boss is charged with corruption.
The Formula One investment in particular has set alarm bells ringing, with some critics raising questions over how the fund’s managers like Slyngstad are themselves controlled. The finance policy spokesman for the Liberal Party has asked Finance Minister Siv Jensen to investigate the Formula One holding, and thinks the Oil Fund should pull out of it.
‘Worried on behalf of the country’
Now one of Norway’s leading economists is voicing concerns as well. “The situation with the investment in Formula One makes me worried on behalf of the country,” Knut Anton Mork, chief economist at Handelsbanken in Oslo, told DN on Wednesday. “I’m not as concerned about the pure economics of it as what such cases can mean for our reputation in the world. And it makes me wonder how well the leading employees of the Oil Fund are being controlled.”
Mork notes that the board of Norges Bank has a heavy work burden, charged with monitoring both monetary policy, the Oil Fund and the central bank’s other operations. “I fear the result is a weak control function,” said Mork. He recently finished writing a report, along with the chief economist of Norway’s biggest bank DNB and a professor from Barcelona, on Norges Bank’s monetary policy that also includes some warnings about control of the Oil Fund.
Slyngstad could recently report another strong year of returns on the fund’s assets, which are meant to provide pensions for future generations. The Oil Fund continues to grow and earn well, but Mork cautions that it also “is becoming steadily bigger and takes part in more and more complex investments, both within the stock market and real estate.” Some of the things in which the fund has become involved, including “stapled securities” in the Formula One case, “remind a bit too much about the complex products that proved to be problematic during the finance crisis,” Mork said.
Jan Fredrik Qvigstad, deputy leader of Norges Bank’s board, responded that he thinks the board’s members have enough competence to control increasing investment complexity. “My experience is that today’s board members are a group representing broad professional background and competence,” Qvigstad told DN. “The board’s work functioned well during the finance crisis.” Øystein Olsen, chairman of the central bank’s board, also claimed the board has “broad professional background and competence” and that the board has “full confidence” in the Oil Fund’s management.
Individual board members like Karen Helene Ulltveit-Moe, a professor of economics at the University of Oslo, were reluctant to comment. Kjetil Storesletten, another professor on the board who’s also a former researcher at the US Federal Reserve Bank in Minneapolis, said only that he “looks forward to every single board meeting.”
While some politicians like Terje Breivik of the Liberal Party are also raising concerns, the fund’s managers may soon win political approval to invest in more unlisted shares around the world. Professor Øyvind Bøhren of Norwegian Business School BI is skeptical.
“Poor transparency, strong majority owners and weaker protection for minority shareholders argue against investing in unlisted companies,” Bøhren said. Professor Steinar Holden at the University of Oslo, though, said the Oil Fund “must aim for the highest possible returns at acceptable risk. Unlisted shares can offer possibilities for greater diversification than we have now.”