If you’re a BP investor who thought twice about catching the falling knife of the firm’s post-Gulf spill shares this summer — well, spare a thought for Norway.
Thanks to the government’s sovereign wealth fund, it’s faced a similar dilemma.
Coming out rather badly from it, according to a release from the fund’s managers (emphasis ours):
The Government Pension Fund Global returned -5.4 percent (-155 billion kroner) in the second quarter of 2010, pulled down by a decline in global equity markets.
“The biggest stock market drop was in Europe, where the fund has about half its equity investments,” says Yngve Slyngstad, Chief Executive Officer of Norges Bank Investment Management (NBIM). “The decline was largely driven by concern over high sovereign debt in some European countries, funding challenges for banks and fears of a new economic slowdown.”…
…The single worst-performing investment was in oil producer BP.
Although of course, the problem isn’t just BP. It’s also the global equity exposure bouncing around inside the Government Pension Fund Global and other SWFs, during a recent run of twitchy volatility. Interesting test case for equities, here, given that SWFs tend to go long and go for excess returns.
And, well, we do wonder if there’s a strategic disconnect forming there.
After all, the Norwegian fund’s Q2 performance compares poorly to the 3.9 per cent return on investment seen in the first quarter — even if the fund was in much stickier wickets in the financial crisis. The GPFG also sounds like one of the more actively-managed funds in the sovereign universe – with its own mandate and mandates handed to external equity investment managers. Here’s another 220 pages of analysis on its management style.
Funny that they’ve been caught out, then. Or perhaps not so funny. As Reuters reported on Friday, sovereign funds’ stakes in European and UK equities fell markedly from the first to the second quarter.
But, as the Oxford SWF Project points out — and Reuters’ own chart makes pretty clear — the real story is that sovereign funds are still sat on a gigantic pile of equity assets collected from the bargain bucket that was the 2008-9 stock market.
Hmm. Giant equity exposure… higher equity volatility, for longer… means more active management in SWFs… means, well, the rise of giant, government-owned hedge funds?
After all, if hedge funds are ‘disguised equity longs’, it’d be a model worth thinking about, when going generally long on equities is seemingly getting harder for SWFs.
Just a thought. Although with Temasek hoovering up Halliburton and Transocean shares in the wake of the oil spill, and CIC aggressively mitigating its rather rum investment in Morgan Stanley in recent days, we wonder if it’ll remain just an idle thought for much longer.
Update (Monday 16 August) — Adventures in fixed-income knife-catching, via Bloomberg and hat-tip to the Oxford SWF project again:
Norway’s Oil Fund Snaps Up Greek, Spanish Debt in Hunt for Higher Yields
Norway’s sovereign wealth fund, the world’s second largest, snapped up bonds from debt-ridden southern European countries to tap into higher yields.
“We have actually increased our exposure,” said Yngve Slyngstad, the head of Norges Bank Investment Management — the central bank’s asset management arm — in an interview in Oslo today. “You have a situation now where, even though the situation is difficult and will continue to be difficult, you get compensated with regards to the yields you are getting.”
Related links:
Why Pimco likes stocks – Bloomberg
Sovereign wealth funds – FT / In depth
You can’t even depend on the SWFs – FT Alphaville (2009)
Sovereign wealth funds prefer equities – FT Alphaville (2009)