Norway To Withdraw $40 Billion From Sovereign Wealth Fund To Fight Coronavirus Impact

Norway is preparing to withdraw 420 billion Norwegian krone (about $40 billion) from its massive $1 trillion sovereign wealth fund to mitigate the economic impact of the coronavirus crisis in order to avoid a “sharper downturn and to help healthy companies through the crisis.”

The Government Pension Fund is the world’s biggest wealth fund and, as a unit of Norway’s central bank, invests the proceeds of Norway’s oil and gas industry in foreign equities, bonds and real estate.

In 2019, the fund earned a record $180 billion.

But in 2020, the Norwegian economy has suffered from persistently low crude oil prices and has witnessed the jobless rate spike to 5.9% -- a level not seen since World War II.

The unprecedented withdrawal from the wealth fund amounts to about 4.2% of its assets – well above the government’s self-imposed cap of 3%.

“It’s a big bill, we are spending a lot of money, and we should be aware that if we spend more money now, it means we can spend less in the years to come,” warned Norway’s finance minister, Jan Tore Sanner.

But Sanner added the withdrawal is necessary to maintain the economy and prevent more bankruptcies and job losses.

The Norwegian government now expects mainland gross domestic product (which excludes the oil and gas sector) to shrink by 4% this year.

The government also warned that the recession could be deep as “uncertainty is unusually high.”

The Oslo government typically makes withdrawals from the fund when oil spending exceeds state income from petroleum. This year will mark the first time that outflows exceeded the fund’s own cash flow from dividends and interest payments.

Separately, a group of Norwegian politicians are concerned that Norway’s central bank, Norges Bank, may undermine the public’s trust in the oil fund through the recruitment of its new chief executive.

The Norwegian lawmakers who comprise the central bank’s supervisory council criticized the selection of billionaire hedge fund manager Nicolai Tangen as the oil fund’s next boss. The appointment of Tangen has raised questions of transparency and possible conflicts of interest.

“It is important that Norges Bank does not place itself in a position so that this confidence is weakened,” the supervisory council, which is made up of 14 politicians and one businessman, said on Monday. “Doubts about the recruitment process, potential conflicts of interest, and uncertainty over ethical tax relationships could pose persistent challenges if these issues are not resolved quickly and clearly.”

Tangen, who will take over in September as only the third chief of the fund in its 24-year history, said he plans to continue holding most of his London-based AKO Capital hedge fund – although he has pledged to relinquish any profits from it during his five-year tenure as the oil fund’s chief.

The AKO Capital partnership has about 70 employees, managing around $16.4 billion in assets.

But the supervisory council warned that Tangen’s continued ownership of the hedge fund might conflict with his running of the oil fund; while noting that some of his companies are registered in tax havens, not subject to Norwegian law.

Tangen previously said he will dissolve a family trust registered in the isle of Jersey (a self-governing dependency of the U.K.). He also pointed out that the registration of various parts of the AKO system in the Cayman Islands in the Caribbean is standard practice in the hedge fund industry.

In response to these concerns, Norges Bank said it will take the council’s criticism into account when it draws up its employment contract with Tangen.

“Work is in progress to ensure that necessary distance is established between the [oil fund], the AKO system and Nicolai Tangen’s personal wealth,” said central bank governor Oystein Olsen.

The supervisory council also criticized the central bank for not publicizing Tangen’s name as a candidate for the job. The council further pointed out that the current chief executive of the fund, Yngve Slyngstad, might have violated ethical guidelines by accepting a private flight back to Norway last November which was paid for by Tangen himself.

Slyngstad, who resigned as chief executive two weeks before that flight, admitted he had “really screwed up.” The central bank later agreed to pay Tangen for the flight without any sanctions slapped on Slyngstad.

When Tangen was named the oil fund’s chief in late March, Olsen praised him for having formed “one of Europe’s leading investment firms” and for having “delivered very good financial results as an international investment manager.”

Olsen added: “He has extensive experience with equity management, which is the [oil] fund’s largest asset class.”