Don: Norway wealth fund should immediately cut oil

Former adviser says investing giant shouldn’t waste any time

OSLO: Norway’s US$1.1 trillion wealth fund shocked the world last year when it announced a plan to divest all its oil and gas stocks, worth US$35bil at the time.

As the government and parliament prepare to give their responses, a former senior economic adviser who used to work for the fund says the investing giant shouldn’t waste any time and start selling now.

Espen Henriksen, who now works as an associate professor at the Norwegian Business School in Oslo, told Bloomberg that the fund “should probably use its room for active positions to immediately, but gradually, decrease its oil and gas holdings.”

The fund’s plan to exit oil is based on a desire to improve the country’s risk exposure, and not on ethical considerations.

As western Europe’s biggest oil and gas producer, Norway gets about 50% of its goods exports from its commodities. But with the rapid growth of renewable energies, there is speculation that demand for petroleum is close to peaking, raising the risk of investing in companies that produce the fuels.

The matter is being analysed by the Finance Ministry, which is due to release a white paper this spring. The government will then give its opinion in the second half of the year before parliament decides.

The fund, which is part of the central bank, gets its investment guidelines from government.

By going public with its wishes, the fund has put pressure on the government. But the tactic could backfire.

Henriksen said the fund’s move “risks creating an unfortunate precedent by giving the asset manager more political power to define its mandate.”

The ruling Conservatives are “open” to a change in the index, but stressed the need for a thorough analysis, said Mudassar Kapur, a Conservative member of parliament’s Finance Committee. The Conservatives head a three-party minority government.

But a majority on the committee said the 2014 oil-price shock revealed vulnerabilities in Norway’s economy and want the ministry to go over the proposal as quickly as possible.

Opposition parties in 2015 forced through a divestment of shares in coal companies against the government’s wishes.

“Our experience with the management of the oil fund is that to a large extent we’ve had to secure decisions in parliament against the Finance Ministry’s advice,” said Kari Elisabeth Kaski, a Socialist Left lawmaker on the Finance Committee. “I wouldn’t be surprised if this is what happens this time around as well.”

Meanwhile, the planned initial public offering (IPO) of shares in Saudi Aramco, Saudi Arabia’s oil behemoth, has added another ripple to the debate. The fund typically invests in large IPOs ahead of time, but may sit this one out, given its views on oil exposure.

According to Kaski, Aramco makes debate more “relevant.”

At the Finance Ministry, State Secretary Marianne Groth said the matter would be “treated in a thorough and good manner.”

Thomas Sevang, a spokesman for the fund, declined to comment before the Finance Ministry has given its view. The fund has previously said any divestment of oil and gas companies would take place over many years.

But the investor has some leeway to act on its own, provided its return doesn’t deviate more than 1.25 percentage point from the return of its benchmark.

And as the largest sovereign wealth fund in the world, it’s become adept at covering its tracks when it trades shares to avoid being front-run.

“I’m confident that this will be handled in a professional manner, and that we don’t end up in a situation where we lose money on clumsiness,” Henriksen said. — Bloomberg

The fund should probably use its room for active positions to immediately, but gradually, decrease its oil and gas holdings. Espen Henriksen

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