The management of Norway’s massive sovereign wealth “Oil Fund” has introduced new protective measures when making investments in unlisted companies. The move follows a controversial investment in unlisted Formula One (F1) ownership company Delta Topco in 2012, which turned out poorly for the fund.
The NOK 1.8 billion (USD 300 million) investment in Delta Topco was the fund’s first venture into shares in a company that had not yet been listed, reported newspaper Dagens Næringsliv (DN) on Tuesday. The fund has only been allowed to do so since the start of 2011, provided the company has expressed its intention to be listed in a regulated and recognized marketplace. Investing in a company before it’s publicly listed is cheaper, increasing eventual returns.
However, nine days after the F1 shares were bought in May 2012, Delta Topco’s listing plans were shelved. Corruption charges against the company’s boss Bernie Ecclestone emerged, and the company can’t be listed until they’re resolved. While the investment has stalled and Oil Fund manager Yngve Slyngstad admitted they’d badly miscalculated, he said they were confident Delta Topco would eventually be publicly listed so the fund was still within its investment mandate.
The fund entered eight more investments in unlisted companies last year, but has implemented new measures to protect itself against being left holding shares in unlisted companies. The Oil Fund’s Chief Investment Officer Petter Johnsen told DN the strategy hadn’t changed when it comes to the early phase of a company’s plans to be listed. “But we have of course had many useful experiences in investing in unlisted companies, where the board has expressed an intention to apply for listing in a regulated and registered marketplace,” he said.
“We take risks, but they will be well-founded risks,” Johnsen said. When the fund subscribes to a share issuance before a company is listed, it is now subject to a new measure: it can only buy shares if the stock exchange listing was actually to happen.
“We will go in four to six weeks before listing,” said Johnsen. “And we have no legal obligations to buy the shares if there isn’t a listing.”
About 20 managers in a global capital strategies group analyze the companies the fund is considering investing in before they’re publicly listed. “The strategy is that we should have thorough knowledge of the companies,” said Johnsen. “It is natural that we want a proximity to the companies. We spend a lot of time and resources on understanding these companies – their strategies, how the company is positioned in different markets and the quality of the leadership.”
The Oil Fund is designed to generate returns on Norway’s oil wealth for future generations. About 60 percent of the fund, NOK 5,000 billion, is invested in shares. The fund is run by Norges Bank Investment Management (NBIM), and the government recently announced sweeping changes designed to make investments more ethical and transparent.
The fund had a 26.3 percent return on its share portfolio in 2013. The return on the eight unlisted company investments was on average 12 percent up until December last year. The fund does not have comparable numbers for newly listed companies, where the fund first bought shares after listing.