The world’s largest sovereign wealth fund increasingly engages in activism over the governance of companies it invests in.
Norway’s Government Pension Fund Global (GPFG), the world’s largest sovereign wealth fund (SWF), is expected to hit another milestone soon—surpassing $1 trillion in assets—amid signs the fund’s size could force it to ditch its vision of being the ultimate passive index investor. GPFG fund notched an average annual return of 5.7% from 1998 through 2016, according to Norges Bank Investment Management (NBIM). At the end of March, it reached NKr7,867 billion ($922 billion) in assets, according to the Sovereign Wealth Fund Institute.
Veljko Fotak, assistant professor of economics at the State University of New York at Buffalo and a fellow at the Baffi Carefin Sovereign Investment Lab, says the GPFG has recently shown increasing activism as a shareholder: “It engages firms whose governance practices it considers lacking, pushing for issues such as the separation of the roles of CEO and chairman, the election of independent directors (and) equality of pay across genders.” GPFG’s own governance regularly places it among the top SWFs worldwide in transparency of control and supervision.
The fund makes its stance known by publicly revealing not just its voting records, but voting intentions. “This new level of activism is not just a moral choice—it is an actual necessity,” Fotak says. GPFG is often a large investor in illiquid companies, and its government affiliation can make divestment politically sensitive, hence is is more involved in governance.
At the end of 2016, the fund was invested 62.5% in equities, 34.3% in fixed income and 3.2% in real estate, spread over 77 countries and almost 9,000 companies, NBIM’s website reveals. The fund has lately sought investments in new markets and asset classes; since 2010 GPFG has been increasing allocations in real estate, expanding from Europe into the US and recently Asia.
Still, its apparent tilt to activism may not be copied by other SWFs. The trend “is more prevalent among Europe/Oceania and select Asia funds,” according to an asset manager working on SWF mandates who asked not to be identified due to client privilege.
Top Sovereign Wealth Funds
The 15 largest SWFs worldwide are mostly in China and the Middle East.
1 Government Pension Fund Global Norway
2 Abu Dhabi Investment Authority UAE
3 China Investment Corporation China
4 Kuwait Investment Authority Kuwait
5 SAMA Foreign Holdings Saudi Arabia
Source: Sovereign Wealth Fund Institute; data updated April 2017