Yngve Slyngstad, chief executive of Norges Bank Investment Management, shared his thoughts on the finance crisis and brought along his own coffee. PHOTO: Views and News
There’s certainly less reason for concern in the long term than the short term, he noted, calling the crises the world is going through now “the growing pains of globalization.” They’re part of fundamental changes in markets and policies that Slyngstad thinks will be good in the long run.
“I think there’s no one who would disagree that Europe needed to make changes,” said Slyngstad, who took over his post as chief executive of Norges Bank Investment Management (NBIM) in 2008, just as the global finance crisis was setting in. “Finally, policy changes are moving fast and in the right direction.”
Crisis leads to change, he noted. The changes now underway involve such aspects as fundamental understandings of risk, the price of liquidity, the concept of openness and the need for simpler financial and economic instruments. In Europe, Slyngstad pointed out, there’s “a clearer understanding that you have to have a vibrant private sector,” for example.
“What’s happening in Europe now is probably positive in the long term,” Slyngstad said at the meeting with members of the Foreign Press Association in Oslo.
Slyngstad described the fund itself as holding up fairly well given the financial turmoil. PHOTO: Views and News
Pain relievers for such things as high unemployment need to come in the form of corrections to global imbalances, such as huge trade imbalances, and the huge differences in indebtedness in different parts of the world, Slyngstad said.
For the oil fund itself, ranked earlier this year as the largest sovereign wealth fund in the world, returns remain “okayish,” as Slyngstad said. Despite all the turmoil of recent months and years, the fund isn’t doing too badly and he thinks returns for the year will be “a bit surprising,” on the positive side. The world economy has been battered by so many forces, from the earthquake in Japan to the debt crises in Europe, “and we’ve certainly had our challenges in Europe … but despite all this, the return has been okayish.”
The crisis also presents opportunities for huge players like the oil fund, in terms of sheer cash flow and muscle to buy stocks and now even real estate at favorable prices. The fund can invest up to 5 percent of its assets in real estate and only has 0.3 percent at present, Slyngstad said, despite the acquisition of some high-profile properties in London and Paris during the past year.
As for more property acquisitions, Slyngstad said he and his colleagues “are happy to sit and see what develops.” He hinted that there’s a lot of real estate with loans that will need to be renewed in 2013, so more activity may be seen then. “But we’re happy to sit and wait,” he repeated.
The fund Slyngstad heads, which he described as “well-diversified and sustainable,” is designed to preserve oil revenues for future generations and it can’t invest in Norway, only overseas. Capital-starved Europe, however, can’t expect much relief from the fund, however, because of strategy that’s shifted towards a more global perspective. Slyngstad said the majority of the fund’s cash flow is currently going into European equities, but he seemed lukewarm on further investment in the European Financial Stability Facility (EFSF) beyond the fund’s participation earlier this year. He said it was difficult to see how it would develop.
In general terms, Slyngstad referred to big differences in financial mentality between northern and southern Europe. “The view from the north, is that you have to take care of your finances so you don’t get into a situation where no one wants to lend to you,” he said, adding that “the private sector has stopped lending to southern Europe.” As far as the oil fund is concerned, he said, it cut its exposure to southern Europe by half in 2009 and needs to focus on liquidity and safety. ”We are very far north,” he said.