The First SWF To Cross the $1TN Mark
Good Week for… Norway
Sometimes procrastination is a good thing… The late research for this week’s post allowed me to incorporate the half-year results for Norway’s sovereign wealth fund, the worlds largest. Norges Bank Investment Management, the arm of the Norwegian central bank that manages the fund, tipped the elusive $1TN mark on June 30th, after the best half-year return in its history. With 65% of its portfolio invested in equities (it’s simple math everyone, that’s $650BN!), the 3.4% from this asset class helped drive the fund to a Q2 return of 2.6%. Also in Q2, the government made its first ever withdrawal ($2BN) to address a slowing economy.
Key takeaway? While the Norway SWF sometimes comes under scrutiny by stakeholders (inducing the financial media) for not beating its benchmark, the fund should be commended for not only taking a long-term lower-risk view, but also one that is shrouded in strong corporate governance and socially responsible values (see below).
Bad week for… Carbon Investments
New Zealand's $35BN sovereign wealth fund, the New Zealand Superannuation Fund (NZSF) has shifted 40% of its funds away from companies with high exposure to carbon emissions and reserves. According to the Fund’s CEO Adrian Orr, financial markets are underpricing climate change risk and therefore such a shift makes the fund more resilient to climate change investment risks (such as stranded assets). The NZSF announced the $14BN global passive equity portfolio will employ a low-carbon methodology, investing in an index of listed equities developed with MSCI ESG Research. NZSF has certainly made some wise investment decisions of late - for the 12 months to May 2017, the fund delivered returns of 18%. Obviously this was buoyed by the general equity market rally, but it compares favorably to most other sovereign funds… and asset managers for that matter.
Key Takeaway? Sovereign funds are starting to reduce exposure to carbon emissions as a low-cost insurance policy. As patient long-term capital investors, this move towards “climate change resilient” portfolios makes sense, and has also been echoed by Norges Bank Investment Management.