Not surprisingly the governance structure adopted by the Norwegians is often presented as paradigmatic of best practice.33 It invests across an investment universe, with risk tolerance levels set and monitored by the Ministry of Finance. 34 The portfolio is diversified across geographic and sectoral dimensions.35 As Thomas Ekeli, a senior official in the Department of Finance in Oslo has pointed out, ‘this balance ensures the fund can ride out any short-term market fluctuations.’36 While there has been much talk about replicating the checks and balances adopted by the Norwegian Government Pension Fund – Global, this is not without substantial short-term destabilising risks. As a leading investment banker in New York conceded to this researcher, ‘those who advocate a Norwegian solution clearly have not read the underpinning rules governing its operation.’37 Many of the recent share acquisitions in global financial investment banks are substantial (see table one above). The scale of individual contributions far exceeds the tolerance limits provided to Norwegian fund managers. Disinvestment on the scale necessary to ensure compliance with Norwegian norms could be exceptionally problematic.
A related problem centres on the activist approach taken by the Norwegian fund in the exercise of its obligations as a shareholder. Forcing Sovereign Wealth Funds to demonstrate independence from political considerations by adopting purely passive positions cuts against the trajectory of responsible corporate governance; a trajectory which has been taken very seriously by the Norwegian Pension Fund – Global.38 Within the academy, this emasculating imperative has gone even further, with the suggestion that Sovereign Wealth Funds should be automatically stripped of
33 See generally, S Chesterman, ‘The Turn To Ethics: Disinvestment From Multinational Corporations For Human Rights Violations: The Case of Norway’s Sovereign Wealth Fund’, American University International Law Review (2008) forthcoming: <http://ssrn.com/abstract=1082685> at 17 March 2008.
34 Norwegian Ministry of Finance, On the Management of the Government Pension Fund in 2006 (Report No 24) 38-43. see generally, S Chesterman, ‘The Turn To Ethics: Disinvestment From Multinational Corporations For Human Rights Violations: The Case of Norway’s Sovereign Wealth
Fund’, American University International <http://ssrn.com/abstract=1082685> at 17 March 2008.
Norwegian Ministry of Finance, above n 33 at 85-88.
36 Interview, Oslo, 11 April 2008. The evidence to date of the risk of sudden capital outflows derives not from funds such as Norway’s but those based in the South Pacific. A fund established in the Pacific island of Nauru invested solely in ‘lumpy’ real estate, while that of Tonga consisted of three holdings in major US corporations. In both cases, not surprisingly, the result was major losses, see E Le Borgne and P Medas, ‘Sovereign Wealth Funds in the Pacific Island Countries: Macro-Fiscal Linkages’ (International Monetary Fund, Washington DC, WP/07/297, December 2007) 20. There is demonstrable difference in the quality of the fund managers brought in to run the major operations in Russia, China and the Gulf. Notwithstanding their expertise and standing, however, there is no way of predicting whether these agents have the capacity to moderate the behaviour of their political masters in the event of an escalating trade or diplomatic dispute.
Interview, New York, 25 April 2008.
38 Most controversially, the Ethics Council of the Norwegian Pension Fund – Global advocated that the Fund disinvest from Walmart. This Centred on fears that Walmart’s supply chain management was defective and could implicate the corporation, and therefore the fund as the owner of its shares, in the violation of International Labor Organisation working condition standards. See generally, Chesterman, above n 33.