(Jan 26): Norway’s US$2.1 trillion ($2.7 trillion) sovereign wealth fund has to raise its preparedness to handle growing geopolitical risks, a government-appointed advisory panel said.
There’s growing evidence of instruments such as tariffs, financial sanctions and trade controls being used to achieve geopolitical goals, a three-member panel of experts said in a report published on Monday.
“The political risk to which the fund’s investments are exposed abroad is increasing,” the panel said, pointing out that the size and visibility of the fund further raises such risks. “The fund may ultimately be subject to increased taxation, regulatory intervention and even confiscation.”
The report comes after a tumultuous period for the world’s biggest owner of listed equities. Last year, it faced a public uproar over its holdings linked to the war in Gaza. This prompted Norges Bank’s Investment Management, as the fund is officially known, to sell out of a number of companies, including Caterpillar Inc, triggering the ire of several Republican lawmakers in the US.
That, in turn, led Norwegian policymakers to suspend the ethics council advising the fund, to prevent other sudden divestments.
Last week, Norway’s Finance Minister Jens Stoltenberg rejected any pull-out of the US amid geopolitical turbulence that has put to question the longevity of the transatlantic alliance.
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The working group, headed by University of Oslo professor Karen Helene Ulltveit-Moe, acknowledged there’s “no easy way” to manage such risks, adding a potential “friendshoring” strategy could significantly hamper both risk diversification and returns.
It also said it was hard to expect “clarity about who is, and more importantly, will remain, one’s friends”, arguing that the fund’s investment universe shouldn’t be restricted by the increased uncertainty. It cited US import tariffs being “linked to other countries’ taxation of US technology companies or now also their stance on the US’s desire to annex Greenland”, as an example.
The group is urging policymakers to use scenario-analysis to increase the understanding of political risks, echoing recommendations from another government-appointed panel which in 2022 warned that the fund was likely to face increasingly challenging moral dilemmas.
Uploaded by Tham Yek Lee
