World's Biggest Wealth Fund Beefs Up Case for Dumping Oil Stocks

(Bloomberg) -- Norway’s $1 trillion sovereign wealth fund is building its case for divesting its massive holdings of oil and gas stocks.

In a presentation last month to key lawmakers obtained by Bloomberg, its chief executive officer, Yngve Slyngstad, said that the fund would have made 308 billion kroner ($38 billion) more over the past decade had it not been invested in oil and gas stocks.

The number crunching expands the fund’s reasoning after it last year stunned markets by announcing it wanted to sell out of oil and gas to reduce Norway’s overall exposure to petroleum. The previously unpublished figures were presented as debate swirls in Norway over what to with the fund’s holding of about $40 billion in oil and gas stocks.

World's Biggest Wealth Fund Beefs Up Case for Dumping Oil Stocks

Parliament is leaning toward approving the plan, but the two largest government parties have so far kept a lid on how they may vote. An expert commission in August recommended against the proposal, arguing that a divestment from petroleum stocks would only marginally limit the effect of lower crude prices on the wealth of Norway, which is western Europe’s biggest oil and gas producer.

The fund’s figures showed that the investor would have boosted returns by divesting oil stocks before the collapse of crude prices in 2014 and re-investing the proceeds in the rest of the fund’s reference index. A sale in 2013 would have yielded 136 billion kroner extra, and even a divestment in 2015 would have made the fund an additional 9 billion kroner.

Officials at Norges Bank Investment Management, the central bank unit which manages the fund, declined to comment. The fund and the central bank haven’t directly addressed the counter-arguments in the report by the expert panel so far, saying only that they maintained their proposal.

The fund’s proposal roiled markets in November last year, sending oil stocks lower. The bank insisted the plan is based purely on financial considerations, aiming to reduce Norway’s risk exposure, and doesn’t reflect a particular outlook for oil prices.

Knut Anton Mork, a Norwegian economics professor who also led a committee in 2016 on expanding the fund’s equity portfolio, bristled at the new arguments being presented by NBIM and warned it could backfire and irritate bureaucrats at the Finance Ministry.

Mork said he supports the fund’s initial argument that selling out of oil stocks would reduce Norway’s overall risk, but that it’s now being “populist” in its advocacy.

“What it’s about is that the Norwegian state is in reality a gigantic oil company and that it therefore makes no sense that it would also invest in other oil companies,” he said. “That creates a concentration risk. And that’s actually all you need to say.”

The presentation at NBIM’s office in New York on the morning of Sept. 21 was one of several events attended by members of parliament’s Finance Committee during a visit in the city that week.

Svein Roald Hansen, a lawmaker for the opposition Labor Party who was present, said Slyngstad didn’t present the figures as a direct argument in favor of the fund’s proposal or against the panel led by economics professor Oystein Thogersen. But the findings were “useful information,” he said.

“When we get to the point where we consider the proposal, there will also be the question of what the downside is -- what do we risk losing,” Hansen said in a phone interview. “At least, it alleviates the concerns over doing this.”

Labor, the biggest party in parliament, has voiced cautious support for the plan, but will make a final decision once the Conservative-led government has presented its view next spring. The Finance Ministry had previously expected to do so this year, but postponed the date to make time for a public consultation on the Thogersen report. The central bank is among those that have been asked to give its opinion.

“I don’t wish to speculate or make any political interpretation on the content in such presentations,” Mudassar Kapur, a Conservative member of the Finance Committee, who also attended the presentation, said in an email. “We’re waiting for the Finance Ministry to present its assessments.”

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