Norway Home Of Worlds Largest Sovereign Wealth Fund Looks To China For Growth

Posted: November 4, 2014 in Econ 101

SOURCE: http://www.scmp.com/business/economy/article/1631481/norway-sovereign-fund-chief-sets-sights-china

Norway sovereign fund chief sets sights on China

Slyngstad hopes to broaden the sovereign fund’s asset mix to include infrastructure and private equity amid plunging interest rates

Tuesday, 04 November, 2014, 5:37am

Once a year, the man running the world’s biggest sovereign wealth fund travels around China for a week.

Though assets from that country only make up about 1.5 per cent of the US$860 billion Norwegian wealth fund’s portfolio, Yngve Slyngstad, its chief executive, says almost all investment decisions are affected by what happens in China.

Understanding what is poised to become the world’s largest economy is crucial for Slyngstad as he manages a fund that Norway predicts will reach US$1 trillion in less than three years. He will be in China this month, visiting Beijing and other cities.

“Every time I come back, my perception of China has changed,” Slyngstad said. “There has been more and more of a question mark over what’s the next step for that economy. The uncertainty among investors is partially due to the fact that it’s more difficult to know what’s happening in that large economy than in any other.”

The composition of the global economy, including the future of emerging markets, will be decided in China, Slyngstad says. Yet growth in China, which by some calculations is already bigger than the United States economy, is slowing and the lack of transparency is making it hard for investors to understand why.

Apart from A shares, the Norwegian fund can also invest in mainland China through listed companies in Hong Kong. Its exposure to the country amounted to 2.7 per cent of its stocks in the third quarter, up from 2.5 per cent at the end of 2013. Holdings include oil producer and explorer PetroChina and Industrial and Commercial Bank of China, the world’s largest lender by assets.

Norges Bank Investment Management, which runs the fund, owned 1.3 per cent of global stocks at the end of last year. Norway’s Finance Ministry has set the broad guidelines at 60 per cent in equities, 35 per cent in bonds and the rest in real estate.

Figuring out how to invest in China is just one of many hurdles. Slyngstad said one of the main worries now was how monetary policy would affect his investment decisions. Continued turmoil in Europe and distortions in credit markets also cause concern. Old rules did not always apply as the nature of the capital markets had changed, he said.

The fund, which has been struggling to meet a 4 per cent real return target set by the government amid plunging interest rates, wants to broaden its investment universe to include infrastructure and private equity.

The government has said it will first judge the fund’s performance in real estate, where it is boosting its investments towards 5 per cent from 1.3 per cent.

A discussion on broadening the asset mix of the fund was coming “no matter” what, and a tipping point could be when it had reached 4 per cent in real estate, Slyngstad said. “That will be a natural touch point, both for the real estate question, and for the real assets question,” he said.

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