Photographer: SeongJoon Cho/Bloomberg

World's Biggest Wealth Fund Reveals Bleak View on Global Trade

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  • Norway’s sovereign wealth fund holds 1.3% of world’s stocks
  • Fund says global trade may have reached an ‘inflection point’

The man running the world’s biggest sovereign wealth fund says there’s every indication that global trade is suffering from something more serious than a temporary slowdown.

Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, as the fund is known, says the heyday of cross-border trade is probably behind us.

Yngve Slyngstad

Photographer: Simon Dawson/Bloomberg

“The question investors are asking themselves is if the easy wins already have been made,” Slyngstad said in an Aug. 29 interview from his office on the top floor of Norway’s central bank in Oslo. “The global supply chains have in a way had a one-time gain primarily through outsourcing of multinationals to China.” 

Norway’s wealth fund owns 1.3 percent of globally listed stocks, spread out over almost 80 countries. And with interest rates at record lows, the investor has cut its long-term return expectations to about 3 percent from 4 percent, even after winning approval from parliament to raise its share of equities to 70 percent from 60 percent.

Slyngstad, who became CEO in 2008 just as the global economy was sinking into the worst crisis since the Great Depression, noted that back then the fund rode out the turmoil by dumping bonds and buying stocks.

“I don’t expect that we will act differently in any similar crisis in the future,” he said.

Value Chains

During a recent conference on globalization, the fund’s chief strategist, Bjorn Erik Orskaug, suggested the world might be at an “inflection point” in trade, with shallower value chains and less cross-border production. And then there’s the protectionist agenda some governments are pursuing.

“Is there also a political situation that could make it more challenging?” Slyngstad said. “Time will tell, but there’s of course a risk on the horizon.” He says the wealth fund’s extremely long-term investment timeline allows it to look past the noise coming from governments that come and go.

The fund will probably stay over-weighted in Europe, where it’s more of an active investor. But the only two economies that really matter are the U.S. and China, Slyngstad said. In November, he’ll head to China for an annual research trip to inform the fund’s investments.

The fund is also looking into making potential changes to its bond portfolio, based on gross domestic product weightings. The investor says that a growing correlation between global bond markets reduces the need for geographic diversification.

$1 Trillion

As the fund approaches $1 trillion in value, its stated goal is to safeguard today’s oil wealth for future generations of Norwegians. It has surged in size since its inception two decades ago, generating an annual nominal return of 5.89 percent.

Norway’s government last year started taking cash out of the fund for the first time, to make up for lower oil revenue. Withdrawals are set to hit about 72 billion kroner ($9.3 billion) in 2017, and remain at that level in coming years amid stricter fiscal rules.

Read more on fiscal policy rule changes here

The fund’s returns are more than enough to handle those transfers, and there’s so far no indication it will need to start selling assets to accommodate withdrawals. Slyngstad said cash flow from bond holdings, real estate and stocks will probably hit 215 billion kroner this year.

The withdrawals from the fund are “significantly lower than our cash earnings,” he said. “We are still net buyers in the market, we just aren’t reinvesting all the cash the fund is generating.”

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