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Ventura Wealth Clients
4 min Read
Sovereign Wealth Funds

The outbreak of Coronavirus has been as lethal for markets as it has been for public health. Panic selling spares none. As markets nosedive and calls for additional margin get triggered; panic drags markets further. Under such tricky market conditions, thoughts of withdrawing completely from the markets invade the minds of individual investors. After all, hardly anybody wants to buy below “key support levels” and sell above “key resistance levels”.

The situation of governments isn’t different. When local problems become global and start affecting various sectors of the domestic economy, eventually affecting government budgets, nations suffer. The government doesn’t want to stop spending on “key sectors” yet finds it difficult to shield the economy from the “loss of revenue” due to slowdown.

Governments and individual investors alike have a lot to learn from serious long term institutional investors. The case in point is Government Pension Fund Global (also known as Norway’s Oil Fund)—a sovereign fund run by the Norway government.

Government Pension Fund Global

To the surprise of many, this Pension Fund is one of the world’s largest funds and holds a stake in more than 9,000 companies across the globe. The fund manages USD 1,148 billion. As you would know, Norway heavily depends on oil and gas exports to run its economy. According to Bloomberg, 54% of Norway’s exports came from oil and gas in 2018. Norway’s Oil Fund helps shields it from the fluctuations in oil prices.

So, what’s the lesson that emerges from it? Read on for the details…

The Fund recently published its annual accounts for 2019. A detailed analysis revealed some interesting facts.

  • The Fund held close to 1.5% of global listed equities
  • It invested in 74 countries
  • The Fund generated a 19.9% return (measured in its domestic currency, the Kroner)— the second best returns in the last 23 years
  • It held 70.8% of its assets in equity, 2.7% in unlisted real estate and 26.5% in fixed income assets

In a nutshell, diversification is the mantra. With such an impressive return, it has managed to outpace many individual countries it invests in.

Is the Oil Fund bullish on India?

India enjoys a weight of 1.2% in the Fund’s equity assets. In 2019, the Fund’s investments in India increased by USD 2.01 billion to USD 9.41 billion. In 2018, the Fund held a stake in 253 companies listed in India. In 2019, this number grew to 317.

In other words, this suggests despite the slowdown fears and growing joblessness in India, the Fund has kept India’s weight in the fund unchanged and increased its bets in India, keeping the long term view constantly.

Sectoral exposure of the Government Pension Fund Global

Besides, asset allocation, the Oil Fund has several stringent stock selection criteria as well.

The Oil Fund follows the ESG (Environment, Social and Governance) philosophy to select companies for its portfolio.  In other words, The Fund won’t invest in companies, irrespective of valuations, if they are caught in activities such as money laundering or their operations pose a serious threat to the environment or they have apathy to social issues, amongst others.

No wonder the Fund has refrained from investing in some of India’s well-known and widely tracked companies belonging to the Tobacco and Mining industries.

Top-20 bets of Government Pension Fund Global in India

Oil Fund is getting stricter on ESG compliance

The Fund has been asking corporations to include more “numbers” rather than “words” in their sustainability report.

Boards must ensure that companies regularly report relevant, quantitative and comparable information on environmental, social and governance issues, states a 104-page report released b­­­­y Norges Bank Investment Management (NBIM). This sends out a powerful message to corporations across the globe, indeed.

Where do companies in India stand?

To make the taxation more attractive, the government of India recently offered an exemption to sovereign wealth funds from the incidence of tax on dividend, interest and capital gains if investments are made in industrial undertakings or enterprises engaged in infrastructure development.

And on ESG score?

Well, that’s an open secret and rather, that’s been the reason why only a handful of companies get a huge premium over others. If Indian companies want to attract more foreign investments, they will have to score high on ESG criteria.

Way forward…

As they say, every cloud has a silver lining. If the pandemic of Coronavirus makes global corporations diversify their manufacturing bases and supply chains, a lot of opportunities may open up for countries such as India. Naturally, wherever there are new opportunities, giant investors such as Sovereign Funds will make a beeline.

Wake-up-India to Make-it-India.

You May Also Like to Read: How to choose the right tax saving investment for you?

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.

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