Sovereign Wealth Fund Institute

Norway’s sovereign wealth fund is making further progress in the Parisian core real estate market. Norges Bank Investment Management and AXA Real Estate Investment Managers have a joint venture that has exchanged contracts to acquire a portfolio of three Paris office properties for €290 million (US$ 399 million). The joint venture is purchasing the properties from SEB ImmoInvest. The joint venture between the two organizations is to target real estate co-investment opportunities in the Paris office market. Currently, the properties are fully occupied and generating rental income equal to 6% of the purchase price.

Properties Include:
28 – 32 Victor Hugo – Paris 16
Prime Office Building – Paris Central Business District

99 Avenue de France – Paris 13
Located in Rive Gauche business area

Le Prélude – Boulogne-Billancourt
Office Building -  Boulogne-Billancourt

According to the press release, “the Norwegian Government Pension Fund Global agreed today to buy 50 percent of seven properties in and around Paris from AXA Group, the fund’s first real estate investment in France.

The purchase price is set at 702.5 million euros, or approximately 5.5 billion Norwegian kroner. The properties constitute about 156,000 square metres of largely office space in the western and central business districts of Paris. NBIM and AXA will form a joint venture where AXA Real Estate provides asset management services.

“The investment is in line with our strategy to initially invest in the biggest European property markets before expanding into other regions,” says Karsten Kallevig, chief investment officer for real estate at Norges Bank Investment Management (NBIM), which manages the fund. “It also reflects our preference to form partnerships with investors that both own and operate properties.”

AXA will hold the remaining 50 percent of the properties on completion of the transaction, which is expected in the third quarter. The properties are as follows:

• 12-14 Rond Point des Champs-Elysées, Paris 8e
• 1-3 / 2 rue des Italiens, Paris 9e
• 16 avenue Matignon, Paris 8e
• 24-26 rue Le Peletier, Paris 9e
• Meudon Campus, 92 Meudon
• OPUS 12, 92 La Défense
• 31-33 rue de Verdun, 92 Suresnes

Source: Norges Bank Investment Management

Norway’s sovereign fund is prodded by some for its conservatism in investments. The sovereign fund takes small stakes by indexing companies across the globe, with a significant allocation to Europe and the Americas. Over the years, the wealth fund actively pushed to diversify from bonds to equities, and now real estate.

Norway’s SWF has also taken bets where other investors feared, such as Greek sovereign debt. Greek sovereign debt proved to be a bit risky for them; therefore, they cut their debt position in it in the first quarter.

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Yngve Slyngstad

“In a year marked by the European sovereign debt crisis and fears of an economic slowdown in Europe, the fund posted its fifth-highest result ever,” says Yngve Slyngstad, chief executive officer of Norges Bank Investment Management (NBIM), which manages the fund.

The fund’s equity holdings returned 13.3 percent in 2010, measured in international currency, while fixed-income investments returned 4.1 percent. The overall return was 1.1 percentage points higher than the return on the fund’s benchmark indices.

“Globally, stocks and bonds gained last year, helped by improving company profits, low interest rates and stimulus measures from the European Central Bank, the Bank of Japan and the US Federal Reserve,” Slyngstad says. “The fund also benefitted from its long-term approach, as large equity purchases during the financial crisis in 2008 and in the first half of 2009 yielded solid returns. The value of our fixed-income investments also continued to recover after steep price drops two years earlier.”

The fund’s best-performing stock sector was basic materials, followed by the industrial and consumer goods sectors. The biggest-gaining stock investments, measured in krone returns, were food company Nestlé, Apple and oil producer Royal Dutch Shell. The weakest performers were Banco Santander of Spain, oil company BP and Banco Bilbao Vizcaya Argentaria of Spain.”

Read more: Norges Bank

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According to the NBIM website, “The Government Pension Fund Global returned 7.2 percent, or 199 billion kroner, in the third quarter, driven by gains in global stock and bond markets. The return was the fifth-largest in the fund’s history.”

……

“Better-than-expected earnings figures from a range of companies and reduced fears of an economic slowdown in Europe contributed to the stock market rally,” Slyngstad says. “Concern over some southern European countries’ sovereign debt also eased somewhat.”

Read more: NBIM

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According to the press release, “Norwegian finance minister Sigbjørn Johnsen and Norges Bank’s governor Svein Gjedrem were in attendance on Wednesday when Norges Bank Investment Management (NBIM), manager of the Government Pension Fund Global, opened a new office in Singapore. The office will help NBIM’s existing office in Shanghai to cover the increasingly important Asia region.

Various representatives of the Singapore authorities and local business community, including trade and industry minister Lim Hng Kiang, were also at the opening ceremony.

“An office in Singapore will strengthen our operations in Asia,” commented Gjedrem. “Having a presence in a region with strong economic growth is important for achieving good management results.”

As one of Asia’s foremost financial centres, Singapore offers good investment opportunities and has a well-developed financial infrastructure. Asset management is a major industry in the country, making it possible for NBIM to recruit and retain skilled workers.

“The new office will be a good supplement to the Shanghai office opened in 2007,” commented NBIM’s CEO Yngve Slyngstad.

Sigmund Kyrdalen has been appointed general manager in Singapore. He is a senior portfolio manager at NBIM and managed NBIM’s London office for two years.  The Government Pension Fund Global had a market value of almost 2 800 billion kroner at the end of June. Around 10 percent of the fund is invested in Asia, and around 15 percent of its equity investments are in Asian companies.

Besides Singapore, NBIM has offices in Oslo, London, New York and Shanghai.”

Press Release: NBIM

Martin Skancke

According to the Guardian, “Investors face years of market volatility as governments consolidate their mountains of debt taken on both before and in response to the financial crisis, says the head of Norway’s sovereign wealth fund.

Martin Skancke, director general of the Norwegian Ministry of Finance Asset Management Department and responsible for the country’s sovereign wealth fund, said uncertainty may dominate but the fund’s long-term time horizon gives it the ability to ride out the gut-churning drops and equally fast rises.

“It will take a long time for governments in both Europe and the U.S. to consolidate their balance sheets. I think there will be probably uncertainty about that consolidation process which will give in to market volatility. That is something we are prepared for and can live with,” he said in a recent interview. “It could last a long time,” he added, referring to how governments will handle the aftershock effects of the financial crisis and how that has affected their accumulation of government debt.

On June 7, European Union finance ministers reached an agreement on the details for a 750 billion euro financial safety net for bloc members struggling to convince markets they can deal with high budget deficits and debt. Skancke said the three to five year time frame governments are giving themselves to cleaning up their balances sheets is a signal for continued uncertainty.”

Read more: Guardian

According to BusinessWeek, ” Norway’s sovereign wealth fund won’t exclude companies from Israel, which raided aid-laden ships bound for Gaza, from its portfolio because it doesn’t set ethical rules based on nationality, the Finance Ministry said.

‘It’s not in keeping with the ethical guidelines to exclude all companies located in a particular geographic area or country,’ the ministry said in a statement on its website today. ‘If we exclude companies due to their presence in a region, or because of a particular nationality, the fund would be perceived as a foreign policy instrument.’”

Read more: BusinessWeek

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Yngve Slyngstad

Below is a presentation on Active Management by Yngve Slyngstad CEO, NBIM

The Three Most Important Active Decisions:

• The timing of benchmark changes
• Inflows and timing of moving from cash to financial assets
• Rebalancing decision when moving back to strategic assets weights

Key Summary Points:

• Twelve years experience of managing the fund suggests that active management could make an important contribution to the return of the fund in the long term.
• We believe we can improve the risk-return characteristics of the fund through active management.
• Norges Bank can not recommend a passive investment strategy which does not seek to achieve cost-efficient market exposure, insight in the underlying assets in which we are invested, or an understanding of the overall risk of our investments.

read more: NBIM Presentation

According to the Ministry of Finance – Norway, “The Ministry of Finance has decided to exclude 17 companies that produce tobacco from the Government Pension Fund Global (GPFG), based on a recommendation from the Fund’s Council on Ethics. The divestment of shares in these companies has now been completed.

“When the Graver Committee proposed the current ethical guidelines, there was debate on whether to exclude tobacco producers from the Fund. Under some doubt, it was decided that tobacco should not be excluded. After the Graver Committee submitted its recommendation, there have been international and national developments through the entry into force of the WHO Framework Convention on Tobacco Control and the tightening of the Norwegian Tobacco Act. We have taken these changes on board and believe – amongst others in light of the consultative input in connection with the evaluation of the ethical guidelines – that it is timely to exclude tobacco from the Fund. It is important that the ethical guidelines reflect at all times what can be considered to be commonly held values of the owners of the Fund,” says Minister of Finance Sigbjørn Johnsen.

In Report No. 20 to the Storting on the Management of the GPFG, the Ministry proposed excluding tobacco producers from the Fund. The move was supported by the Storting. The specific delimitation of the tobacco criterion was described in the National Budget for 2010. The recommendation was made in line with this. On the basis of the index providers’ industrial classification of companies in the GPFG’s equity and fixed-income portfolio (FTSE All Cap and Barclays Global Aggregate) and information on the companies’ own websites, the Council on Ethics has identified 17 companies engaged in activities affected by the criterion for exclusion of tobacco producers. Since the companies themselves state that they are primarily engaged in tobacco production, the Council on Ethics has not found it necessary to contact the companies to confirm this.

The excluded companies are: Alliance One International Inc., Altria Group Inc., British American Tobacco BHD, British American Tobacco Plc., Gudang Garam tbk pt., Imperial Tobacco Group Plc., ITC Ltd., Japan Tobacco Inc., KT&G Corp, Lorillard Inc., Philip Morris International Inc., Philip Morris Cr AS., Reynolds American Inc., Souza Cruz SA, Swedish Match AB, Universal Corp VA and Vector Group Ltd.

In drafting a new criterion on screening tobacco producers, the Ministry of Finance placed particular emphasis on finding a delimitation that fits well with the structure of the current ethical guidelines, including existing rules for negative screening of certain weapons manufacturers.

On this basis, a rule has been adopted that in principle will exclude all production of tobacco, regardless of the percentage of business represented by tobacco production. This means that it will be possible to exclude a few more companies than those listed under the industrial classification “tobacco” by the index providers. The new screening criterion for tobacco production is limited to tobacco products and does not include associated products such as filters and flavour additives.

The Council on Ethics has given notice that it may return with further recommendations to exclude companies that produce tobacco.”

read more: Ministry of Finance – Norway

According to Bloomberg, “Norway’s $445 billion oil fund demanded that Volkswagen AG, Europe’s largest automaker, cancel its merger with Porsche SE, saying the deal favors the German sports-car manufacturer’s family owners.

The proposed transactions are unacceptable as they “leave the impression of being designed to suit the needs of the Porsche controlling families,” Norges Bank Investment Management, which manages the fund, wrote in a letter dated yesterday to Volkswagen supervisory board Chairman Ferdinand Piech and board members.

The fund, which invests Norway’s oil and gas revenue in stocks and bonds outside of the country, said it’s weighing unspecified options if VW doesn’t reconsider the deal, which was agreed upon after months of negotiations. The German state of Lower Saxony, VW’s second-largest shareholder with a 20 percent stake and veto rights, has signed off on the August agreement between the two German carmakers. “

read more: Bloomberg

Bloomberg reports, “Norges Bank Investment Management, which oversees Europe’s largest sovereign wealth fund, named a new team of executives after record losses last year wiped out gains from 12 years of investing Norway’s oil and gas revenue.

The 2.47 trillion-krone ($410 billion) Government Pension Fund – Global promoted Bengt Enge to chief investment officer, Trond Grande to chief risk officer and Age Bakker to chief operating officer, the Oslo-based fund said today. Mark Clemens from Citigroup Inc. will be chief administrative officer and Jessica Irschick from UBS AG chief treasurer.

‘NBIM now has a management team with considerable international financial markets experience, Yngve Slyngstad, the chief executive officer of the fund, said in a statement. Deputy CEO Stephen Hirsh also remains in his position.”

read more: Bloomberg

StatoilHydro ASA, Norway’s biggest oil company, plans to double U.S. production by the end of this year as new platforms begin pumping crude in the Gulf of Mexico. Oil and natural-gas output in the country will climb to the equivalent of about 60,000 barrels of crude a day from about 30,000 now, said Oivind Reinertsen, president of StatoilHydro’s U.S. and Mexico operations.

The company, which spent about $11 billion to re-establish a U.S. presence after returning to the country in 2005, targets 100,000 barrels of oil a day by 2012. The main drivers of this year’s increase are two deepwater Gulf projects: Tahiti, which started producing this month, and Thunder Hawk, which is scheduled to go online in the current quarter.

read more: Bloomberg

Norway – Government Pension Fund – Global is one of the most transparent sovereign wealth funds in the world. The sovereign wealth fund is a shareholder in more then 7,900 firms that span the globe. They are trying to expose themselves toward emerging markets.

The fund’s ownership of global equity markets rose to 0.77%.
Inflows of capital into the fund were record-high at NOK 384 billion and invested entirely in global equity markets
The return on the fund was -23.3% in international currency, the weakest result in the fund’s history.
Norges Bank Investment Management (NBIM) is making significant changes to its investment strategy in order to make better use of the fund’s size and long-term investment horizon.

read more: Ebook-GPF

The Norwegian SWF is administered by Norges Bank Investment Management (NBIM), a division of the Norwegian Central Bank.

According to the Press Release by Norges Bank, “the Fund’s foreign exchange requirements are partly met by the state’s direct financial interest in petroleum activities (SDFI) and partly by Norges Bank’s purchases in the market.

The Ministry of Finance determines the size of the monthly allocations to the Fund. Norges Bank’s purchases of foreign exchange are equal to the difference between the allocations and the SDFI’s estimated foreign exchange revenues. Adjustments are made for any revisions of estimates for the previous month. As a result, the daily purchases may vary from one month to the next. The daily foreign exchange purchases are determined for a period of one month at a time and are published on the last business day of the preceding month.”

read more: Norges Bank