U.S. markets not worth risk
OSLO, Sept 17 (Reuters) – Norway’s $362 billion sovereign wealth fund (SWF) is cool towards taking part in U.S. financial sector recapitalisation due to political and regulatory risks, its chief told Reuters on Wednesday.
Yngve Slyngstad said his fund — Europe’s biggest equity investor — has nevertheless been a “stabilising force” in volatile markets, “buying more equities when markets are weak” and “less equities when markets are strong”.
“We are a long-term investor … investing with only financial interest,” he said in a rare interview.
“Currently the game in the U.S. financial sector looks more short-term, more political and is more momentum-driven. And with our approach to investing, these are not necessarily the circumstances that we feel so comfortable with.”
Slyngstad said his deep-pocketed fund, which invests more than $1 billion of new cash each week, was “high on the list” of investors called to participate in financial sector recapitalisation schemes on both sides of the Atlantic.
In May, Slyngstad told Reuters he hoped the fund would do private equity-type deals such as possible bank rescues.
But sovereign wealth funds have kept a low profile in the latest round of changes, with Lehman Brothers filing for bankruptcy protection after failing to find a buyer and its peer Merrill Lynch taken over by Bank of America.
Slyngstad said he favoured the European approach of recapitalisation by “less risky” rights issues for existing shareholders, rather than the U.S. method of “replacing old shareholders with new ones”.
“That of course raises the risk … because you may end up being diluted in the next round of capitalisation,” he said.
Slyngstad added that the present situation in the U.S. financial landscape had “a lot to do with guessing about political and regulatory intervention in the market”.
CRISES NOT OVER
The Government Pension Fund — Global, known as the “oil fund”, invests Norway’s oil wealth in foreign stocks and bonds to save for future generations. It puts roughly half of its assets in Europe, owns more than 1 percent of all European equities and has been hailed as a model of transparency for sovereign wealth funds in oil-rich states.
For the past year it has been gradually shifting to a 60 percent allocation in stocks from 40 percent, and held 50 percent in equities by the end of the second quarter.
“In one sense we can say we’re comfortable now with having this transition into 60 percent equities being conducted at a much lower market level,” he said.
Asked about whether the worst of the financial crises has passed, he said: “We can’t really see that this crisis is over.”
The oil fund posted its worst-ever quarter in January-March, when it shrank by $15 billion despite new transfers of more than that due to high oil prices. It grew in the second quarter but still posted a negative return on investment.
Slyngstad said that like much of the financial world, he expected a tighter regulatory environment after the crises — which have rocked markets over the past year — finally end.
“We have had a credit crisis, a liquidity crisis and now a banking crisis,” he said. “You don’t go through this type of situation without having some sort of (new) regulations.”