Norway Considers Pulling Its $1 Trillion Wealth Fund Out of Oil Stocks

Norway Considers Pulling Its $1 Trillion Wealth Fund Out of Oil Stocks

Norway Considers Pulling Its $1 Trillion Wealth Fund Out of Oil Stocks

Norges Bank Investment Management, which runs Norway's $1tn oil fund, has recommended that the sovereign wealth fund ditches its investments in oil and gas stocks.

"That would mean all companies that the FTSE has classified with the sector, should be removed from our reference index".

Owning close to 1.5% of global stocks, the Norwegian fund largely follows indices, but is allowed some active management of its portfolio.

"However, in periods of substantial and prolonged oil price changes, the difference in returns between oil and gas stocks and the broad equity market have been considerable". It also held stakes in Italy's Eni, France's Total and Sweden's Lundin Petroleum. The fund's exposure to fossil fuel markets is now double that of a standard global fund, the Central Bank said. It invests Norway's revenues from oil and gas production for future generations in stocks, bonds and real estate overseas.

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At the end of the third quarter, Royal Dutch Shell was the fund's third-biggest equity investment overall, worth around US$5.34 billion and exceeded only by its ownership in Apple and Nestle.

The aim of the proposal is to make Norway's wealth less vulnerable to a permanent drop in oil prices, especially at a time when the fund is increasing the proportion of its portfolio it invests in equities to 70 percent from 60 percent previously.

Built from Norway's oil and gas revenue over the past two decades, the fund takes into account ethical rules encompassing human rights, some weapons production, the environment and tobacco when deciding on investments.

But Norges Bank said that investing money back into the energy sector meant the government's exposure to the price of crude was too high, particularly given the country's majority stakes in Statoil ASA.

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Two years of weaker oil prices has cut into the income of numerous world's largest sovereign-wealth funds, which are in largely resource-dependent countries like Saudi Arabia and Kuwait.

Norwegian Minister of Finance Siv Jensen said the issues raised by Norges Bank "are complex and multifaceted" and its advice requires a thorough assessment. "We can do that better by not adding oil price risk through the fund". Several U.K. pension plans have funds that don't invest in the sector.

Oil and gas stocks would be replaced by investments in other companies, Matsen said.

At the earliest, the ministry's first opportunity could come in the spring, with a vote in parliament in June.

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