OSLO—The chief executive of Norway's Pension Fund Global, the world's second-largest sovereign wealth fund, believes yields on southern European countries' bonds became more attractive last year, and will continue to improve in 2011 thanks partly to government measures.
"We think that the measures that were taken during 2010 by European politicians were positive, so we are optimistic that the measures which will be taken in 2011 will also be positive for the bond investors," Yngve Slyngstad said in an interview at his office in Oslo.
The Pension Fund Global, in which Norway deposits its petroleum revenues, sold about half of its government bond investments in southern Europe in 2009 but bought back parts of that in 2010, Mr. Slyngstad said. While this buying reflects the fund's view that yields look attractive considering the risks, he added the region's sovereign-debt crisis hasn't reached its end. "With all the gyrations in the bond market, it does not feel like the situation has passed."
Euro-zone leaders are discussing a "comprehensive" response to the debt crisis, which includes more policy coordination within the 17-nation currency bloc. They are also looking to increase the lending capacity of the €440 billion ($602.18 billion) European Financial Stability Facility, a vehicle that will issue guaranteed debt to raise money for euro-zone members that can't borrow in the markets.
The $513 billion sovereign wealth fund, second-in-size globally after Abu Dhabi's, has 60% of its fixed-income investments and 50% of its equity investments in Europe, giving it a "large footprint in Europe," Mr. Slyngstad said.
The fund reported a return of 7.2%, or 1.99 billion Norwegian kroner ($350.8 million) in the third quarter, driven by gains in global stock and bond markets. It will present its annual report March 18.
The fund's best-performing stock investment in the three months to Sept. 30 was oil company BP PLC. Mr. Slyngstad said holding shares in the company is something "that calls for a lot of thought from investors in general" after the 2010 Gulf of Mexico oil spill. BP's environmental responsibilities are a "clear concern" for the pension fund but it is important that investors in general not back away from multinational firms, he said.
"It is clear that a smaller oil company that is operating in one country only would not have the financial strength that BP has and would not have the possibilities to put in place the measures on safety that BP has."
The "most unfortunate outcome" of the oil spill would be if investors moved money from multinationals into smaller oil companies, believing them to be safer, because they wouldn't have the financial capacity to prepare for or deal with an accident of the type that occurred at the Deepwater Horizon rig, Mr. Slyngstad said. The pension fund has signaled "strong confidence" in the BP board, which appears to have put "safety concerns at the top of their agenda."
Mr. Slyngstad said the fund has made "quite dramatic changes from 2008 until now" in its investments, increasing its exposure to equities and decreasing its exposure to bonds as it takes on more risk. The Pension Fund Global has moved to 60% in equities from 40%, and is moving to 5% in real estate from zero, he said. "Effectively we are moving the bond portfolio from 60% of the fund down to 35% of the fund, which is a major shift," he said. "Overall it means higher tolerance for risk [by] being an owner in the equities markets."
The pension fund, which is run by the central bank unit Norges Bank Investment Management, made its first investment in property recently, buying a 150-year lease on a 25% stake in the U.K. Crown Estate's portfolio of properties on Regent Street in London.
But Mr. Slyngstad said it isn't in any hurry to increase its holdings, and expects the fund to take about three years to reach its 5% target for the sector. "There is quite a lot of refinancing that will come up in 2011 and particularly 2012, so hopefully there will be good opportunities then."
From Jan. 1 the pension fund has been able to invest in private equity, which it regards as "part of the equity asset class," he said. This will happen "only if the board has the intention to list the companies."
Source: http://online.wsj.com
"We think that the measures that were taken during 2010 by European politicians were positive, so we are optimistic that the measures which will be taken in 2011 will also be positive for the bond investors," Yngve Slyngstad said in an interview at his office in Oslo.
The Pension Fund Global, in which Norway deposits its petroleum revenues, sold about half of its government bond investments in southern Europe in 2009 but bought back parts of that in 2010, Mr. Slyngstad said. While this buying reflects the fund's view that yields look attractive considering the risks, he added the region's sovereign-debt crisis hasn't reached its end. "With all the gyrations in the bond market, it does not feel like the situation has passed."
Euro-zone leaders are discussing a "comprehensive" response to the debt crisis, which includes more policy coordination within the 17-nation currency bloc. They are also looking to increase the lending capacity of the €440 billion ($602.18 billion) European Financial Stability Facility, a vehicle that will issue guaranteed debt to raise money for euro-zone members that can't borrow in the markets.
The $513 billion sovereign wealth fund, second-in-size globally after Abu Dhabi's, has 60% of its fixed-income investments and 50% of its equity investments in Europe, giving it a "large footprint in Europe," Mr. Slyngstad said.
The fund reported a return of 7.2%, or 1.99 billion Norwegian kroner ($350.8 million) in the third quarter, driven by gains in global stock and bond markets. It will present its annual report March 18.
The fund's best-performing stock investment in the three months to Sept. 30 was oil company BP PLC. Mr. Slyngstad said holding shares in the company is something "that calls for a lot of thought from investors in general" after the 2010 Gulf of Mexico oil spill. BP's environmental responsibilities are a "clear concern" for the pension fund but it is important that investors in general not back away from multinational firms, he said.
"It is clear that a smaller oil company that is operating in one country only would not have the financial strength that BP has and would not have the possibilities to put in place the measures on safety that BP has."
The "most unfortunate outcome" of the oil spill would be if investors moved money from multinationals into smaller oil companies, believing them to be safer, because they wouldn't have the financial capacity to prepare for or deal with an accident of the type that occurred at the Deepwater Horizon rig, Mr. Slyngstad said. The pension fund has signaled "strong confidence" in the BP board, which appears to have put "safety concerns at the top of their agenda."
Mr. Slyngstad said the fund has made "quite dramatic changes from 2008 until now" in its investments, increasing its exposure to equities and decreasing its exposure to bonds as it takes on more risk. The Pension Fund Global has moved to 60% in equities from 40%, and is moving to 5% in real estate from zero, he said. "Effectively we are moving the bond portfolio from 60% of the fund down to 35% of the fund, which is a major shift," he said. "Overall it means higher tolerance for risk [by] being an owner in the equities markets."
The pension fund, which is run by the central bank unit Norges Bank Investment Management, made its first investment in property recently, buying a 150-year lease on a 25% stake in the U.K. Crown Estate's portfolio of properties on Regent Street in London.
But Mr. Slyngstad said it isn't in any hurry to increase its holdings, and expects the fund to take about three years to reach its 5% target for the sector. "There is quite a lot of refinancing that will come up in 2011 and particularly 2012, so hopefully there will be good opportunities then."
From Jan. 1 the pension fund has been able to invest in private equity, which it regards as "part of the equity asset class," he said. This will happen "only if the board has the intention to list the companies."
Source: http://online.wsj.com
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