In a bid to become a more active investor, Norway has appointed a corporate governance advisory board to help oversee its $760bn sovereign wealth fund
Having quadrupled in size over the last eight years, the world’s largest sovereign wealth fund has appointed a board of three British corporate governance experts to help expand the fund’s role in the management of its holding companies. Those appointed include Peter Montagnon of the Association of British Insurers, the Financial Times’ John Kay and Lloyds director and former Hermes CEO Tony Watson.
The trio will now be tasked with giving advice to fund managers NBIM at a strategic level on the fulfilment of the fund’s ownership mandate. More general corporate governance issues will also be on the table. According to Thomas Sevang, a representative of the group that oversees the fund, this new emphasis on corporate governance should serve to heighten the fund’s long term ownership work.
“Establishing the board is a part of the fund’s focus on corporate governance, and it will be a valuable sounding board on the long term ownership matters,” he says. “The board will provide insight and continuous challenge to our corporate governance practice and standards.”
Rigid standards have been the fund’s bread and butter as it’s quickly risen to monolithic heights. After oil was discovered in the North Sea in 1969, Norwegian officials began to worry the country’s prosperity was becoming overly reliant on a non-sustainable industry. Accordingly, the government launched a sovereign fund in 1990 in which surplus cash from state-owned oil producers could be deposited and reinvested in less volatile enterprises. In turn, the resulting cash flow has largely been applied to the increasing pension demands of Norway’s greying population.
Since then, the fund has grown by leaps and bounds. Wise investments by the Norwegian government have been spearheaded by an ethics council that ensures each holding company adheres to a strict set of environmental and human rights guidelines. In the past eight years, the fund has surpassed even Saudi Arabia’s massive SAMA fund to become the global leader in sovereign wealth funds.
The dizzying pace at which the fund is growing has caused tension amongst Nordic politicians. The oil fund now owns an average of 2.5 percent of every European listed company, and has a stake in some 7,500 firms. Of nearly every company it has invested, the Norwegian fund always seems to find itself among the top 20 shareholders.
There are many in Norway who worry the fund’s increasing girth is starting to resemble a ‘too big to fail’ cautionary tale. As general elections loom, the country’s Conservatives appear dead-set on seeing the wealth fund split up into two competing ones. Bearing that in mind, change could be imminent; after eight years of centre-left rule, Norway’s government appears dead-set on returning to Conservative hands in September.
In the interim, fund organizers are no doubt hopeful the new appointment of these corporate governance advisors will allow the country’s pensions pot to grow further still. At present, 63.4 percent of the fund’s investments are in equities, 35.7 percent in fixed income and 0.9 percent in real estate. Now the government is looking to become a more active voice in the day-to-day running of these high level investments. According to Yngve Slyngstad, the CEO of NBIM, achieving greater influence in the way the fund’s holding companies are run will greatly simplify things from a management point-of-view.
“We recognize that with our size in the capital markets we have a responsibility for good corporate governance in single companies as well as the market at large,” he said. “Our ownership strategies will support the management of the fund and safeguard the growing value for future generations.”