Forget the clash in Ukraine for the moment. The most compelling story for your investments may just be what the $840 billion Norwegian sovereign wealth fund decides to do with its money. It’s got the kind of financial muscle that everybody notices when it flexes. It just did.
In case you missed the story this week, the Financial Times reported that the parliament in Norway is considering banning the fund from investing in the coal, oil and gas industries for environmental reasons. The issue is currently under a one year review. The fund is already banned from investing in tobacco and certain companies that supply military weapons.
Considering all the money in the sovereign fund – the world’s largest by the way – came from the profits of Norway’s oil and gas industry, which is a heavy emitter of fossil fuels itself, you might say that’s an unusual position.
But cognitive dissonance aside, we’ll give you an idea of how it could move the markets: the fund not only owns a substantial stake in BHP, Woodside and Whitehaven coal, but according to the FT: ‘It now owns on average 2.5 per cent of every listed company in Europe and 1.4 per cent of every company in emerging markets.‘It’s huge. Nearly 8% or so of its equity investments are currently in the oil and gas business.
They include, according to The Age, the world’s biggest petroleum companies Shell, ExxonMobil, BP and Chevron. That’s no surprise, in the sense that the big oil majors are some of the world’s largest companies. And when you have $840 billion to invest, you’re always going to own some of the global behemoths, whatever they do. But you’d think the precedents and reactions from here on in will need to be watched closely.
Any sell down by the Norwegian fund would be for political reasons, not economic ones. Norway is effectively saying it’s prepared to leave the cash on the table for what it thinks is the right thing to do. That’s a costly idea if you focus on real returns. But return aside, the decision would seemingly change absolutely nothing about global energy use. Hmm.
One aspect to the story is especially relevant with our conference World War D: Money, War and Survival in the Digital Age under a month away. It’s the notion that what Norway has now is not just a juicy financial fund, but a major strategic and political weapon. That’s brings power and a challenge.
Here’s the FT talking about the proposed ban on fossil fuel investments:
‘A broader concern, only uttered privately, is that such a ban could lead to the fund being viewed abroad as a political object. The oil fund has carefully cultivated its image as a serious financial investor. There has, for instance, been no overt criticism of western central banks’ policy of quantitative easing despite deep unease inside the fund over what it means for bond investors.
‘But former fund officials say one of the big worries internally is that the fund could get caught up in a political fight abroad if it is seen as an arm of Norwegian state, possibly even having its assets expropriated.‘
The idea of sovereign wealth or hedge funds being used an arm of the State will no doubt come under James Rickards’ speech at the conference. He is the author of Currency Wars and his latest book The Death of Money will launch at World War D. Rickards pointed out this week that the US didn’t retaliate against Putin’s 2008 invasion of Georgia because Russia was a major holder of Fannie Mae debt. President Bush was trying to placate creditors while Fannie Mae was in free fall. Rickards said the US is in a similar position right now. Any major move by the US against Russia could easily see hackers crash US markets.
If you have a lot of money in the stock market, today your wealth is hostage to a lot more than the usual market risk. How do you defend yourself against this type of scenario? That’s what World War D is all about. More next week, stay tuned.