Yngve Slyngstad, boss of Norway’s $1tn oil fund for just a few extra days, as soon as mentioned there weren’t many sovereign wealth funds in democracies for a cause: uncooked capitalism and egalitarian societies just like the Nordics hardly ever make for comfy bedfellows.
For a very long time, the Scandinavian nation made it appear simple, diverting its petroleum revenues into what turned the world’s largest sovereign wealth fund proudly owning the equal of 1.5 per cent of each listed firm worldwide.
However the previous few months have proven Norway and the world simply how tough it may be. The extraordinary drama across the appointment of hedge fund supervisor Nicolai Tangen to succeed Mr Slyngstad subsequent week has uncovered weaknesses in Norway’s mannequin and carried out hurt to all the principle protagonists.
The affair — seemingly resolved on Monday evening by Mr Tangen agreeing to switch possession of his stake in $20bn hedge fund AKO Capital to a charitable basis he arrange and liquidate his non-public investments into money — has already turn out to be the most important disaster within the fund’s 24-year historical past. All events will now must play their position in steering it safely again to calmer waters.
On the centre of the matter is the botched appointment of Mr Tangen by Norway’s central financial institution, which homes the fund. Norges Financial institution could scarcely have believed its luck that anyone with the funding calibre of Mr Tangen was within the position. However the central financial institution has struggled ever since.
Governor Oystein Olsen didn’t see that Norway’s politicians could be removed from comfy together with his preliminary plan: permitting Mr Tangen to retain 43 per cent of AKO and personal investments that included AKO funds registered within the Cayman Islands. Faltering performances at press conferences and in entrance of parliament haven’t helped. “It has been painful to observe. Their communication has been very poor,” mentioned one adviser to Norway’s authorities.
There may be additionally a structural difficulty. After a rejigging final 12 months, Norges Financial institution bought a separate financial coverage committee, leaving its government board answerable for overseeing the oil fund. Nevertheless, critics argue that this board has nearly no asset administration expertise and no worldwide members.
“It doesn’t appear to be how you’ll think about the board for the world’s largest sovereign wealth fund. My concern is that an skilled fund supervisor like Nicolai Tangen may run rings round this board,” mentioned one former oil fund official.
Mr Olsen unsurprisingly disagrees, arguing that the criticism fails to “keep in mind the division of labour between a board and NBIM”, the fund’s supervisor. He burdened in an interview with the Monetary Instances that the manager board’s process was “extra of a strategic nature” and that he was proud of the “composition and competence of the board”.
The federal government can also be in an ungainly bind. Finance minister Jan Tore Sanner lengthy stayed on the sidelines in the course of the storm. He lastly requested recommendation from an exterior regulation agency, figuring out that it had as just lately as Might acted for Mr Tangen. Final-minute steerage from authorities attorneys indicated he may have intervened a lot earlier and extra forcefully within the course of to put out his “issues” about Mr Tangen’s investments.
Norway’s politicians should not solely innocent both. The 9 events in parliament impressively agreed a united place and acted as an vital sign to Norges Financial institution that permitting Mr Tangen to retain his possession in AKO was not one thing the Norwegian individuals — the last word homeowners of the fund — may settle for.
However there stays a residual concern that among the political events would love nothing greater than to achieve additional affect over the wet day fund, which was intentionally positioned within the central financial institution to attempt to forestall such interference.
“I feel the politicians might be emboldened by this,” mentioned one Norwegian fund supervisor, who argued that the concept conflicts of curiosity may very well be “eradicated” for Mr Tangen was a harmful one.
Lastly, there’s Mr Tangen himself, who some regard as having the least to reproach himself for. He’s successfully giving up about NKr10bn ($1.1bn) by transferring his stake to the AKO Basis somewhat than promoting it. That’s cushioned by the NKr7bn he’ll now have within the financial institution after promoting out of his non-public investments, however the wealth tax he pays in Norway on that’s set to dwarf his wage from the fund.
Some argue, although, that he may have seen the way in which the political wind was blowing and supplied to switch his stake earlier to keep away from such a big and probably damaging public confrontation. “It’s been clear to me for some time that the one method he may turn out to be CEO was eliminating his stake in AKO, and I don’t know why it wasn’t to him,” mentioned the Norwegian fund supervisor.
Messrs Olsen and Tangen now must work laborious to revive belief within the fame of each the central financial institution and the fund. Requested about this, Mr Olsen instructed the FT: “It’s a tough query. Over time, I’m very assured that the boldness within the central financial institution, each as a central financial institution and to the oil fund half, will stay.”
However he added that the critics “won’t disappear fully”. Dealing successfully with them might be essential to making sure the anomaly that could be a profitable sovereign wealth fund in a democracy continues.