World’s largest sovereign fund means biz in Sri Lanka

The world’s largest sovereign wealth fund, Norway’s Pension Fund, with assets worth a staggering $ 800 billion, appears to be bullish on investing in Sri Lanka, having built a small yet growing portfolio of listed equities.

Recently, the Norwegian Embassy revealed that its Pension Fund has invested $ 31 million in shares of 12 Sri Lankan listed companies engaged in industrials, finance, telecommunications and consumer goods sectors. It didn’t reveal what the companies are but suggested it was the first step with analysts hopeful of an expanded engagement with the Sri Lankan capital market in the long term.

The 50-year old Norwegian Pension Fund is managed by Norges Bank Investment Management (NBIM), part of the Norwegian Central Bank on behalf of the Ministry of Finance.  As at 29 January, its total value was $ 802 billion, down from $ 830 billion end of 2015.

According to international financial press, the Norway’s Sovereign Wealth Fund has hired 12 new managers to strengthen its focus on emerging markets including Sri Lanka. Two separate reports in UK Financial Times and Bloomberg have revealed among them are new kid on the block Lynear Wealth Management based in Colombo. Lynear is a relatively new investment advisory and private wealth management firm.

When asked what stocks comprise the Lankan portfolio for the Norwegian fund, Lynear Wealth Management declined to comment, citing respect for confidentiality of its clients.

However, knowledgeable capital market sources confirmed the entry of Norwegian fund and described it as a major boost to Sri Lanka’s investor profile as well as its status as an attractive frontier market.

According to its website, Lynear was founded by four partners in 2013 as an independent, pure-play investment advisory firm with no links to any investment bank or stockbroker. 

The four partners are Sanjay Kulatunga, ex-Jardine Fleming Hong Kong regional analyst and founding Director of Amba Research Lanka; Dr. Naveen Gunawardane, ex-Goldman Sachs London and former Director and Head of the Quantitative Services at Amba Research in Sri Lanka and Head of Investment Banking at Capital Alliance Partners; Dr. Kemal de Soysa, former Country Head of Amba Research Lanka; and Zaffar Jeevunjee, ex-Credit Suisse First Boston Structured Products Analyst. Non-Executive Director is Shamindra Perera, formerly Managing Director of Russell Investments (UK).

Despite attractive valuations, depressed sentiments have hurt the Colombo Bourse. Year to date the All Share Index is down nearly 4%. However prior to last week the ASI had been on the rise during the previous seven weeks.

Bloomberg reported that the Oslo-based fund has been increasing its focus on emerging and frontier markets to boost returns this year onwards. 

“The Norwegian fund only has about 4% of its assets (around $ 35 billion) managed externally. It has been bringing more and more cash back in-house after being stung by losses during the financial crisis and criticism over large bonuses to outside fund managers,” said the Bloomberg report. 

Financial Times said the Norwegian fund took business away from eight investment houses last year before adding a number of new firms to its roster last year including Mirabaud, the Swiss asset manager, Brummer & Partners, the Stockholm-based hedge fund outfit and Sri Lanka-based Lynear Wealth Management. 

“Norway’s sovereign fund hires all types of managers, large, medium and emerging. For small managers, it is a great opportunity to land larger mandates with other asset owners,” the UK FT quoted Sovereign Wealth Fund Institute President Michael Maduell as saying. To UK FT too, the Norway fund declined to comment on the changes to its roster of asset managers. 

According to the Norwegian Embassy in Sri Lanka, its Pension Fund has a long-term perspective. The goal is not quick returns but security of Norwegians in the future. Because of its size, a highly expert organisation of asset specialists has been assembled to manage it. To spread risk and avoid being perceived as a threatening investor, it purchases relatively small blocks of shares in many companies across many markets instead of concentrating its investments. 

The fund cannot invest in companies involved in production of nuclear weapons, cluster weapons, land mines or biochemical weapons. The ethical guidelines for the fund were set by the Parliament in 2004. They are based on international human rights law and social responsibility in business.

The Ministry of Finance sums up Norway’s approach to the question of transparency as follows: “Because we manage a large portion of the wealth of present and future generations of Norwegians, it’s important and necessary to have the confidence of the population as we work with the fund. We gain trust and legitimacy by providing a large degree of openness around the investments, results and strategy of the Fund. Openness also has the effect of disciplining the management.”

The Government Pension Fund of Norway is saving for future generations in Norway. “One day the oil will run out but the return on the fund will continue to benefit the Norwegian people.”