World’s Largest Sovereign Wealth Fund Cutting Volatile Energy Stocks

Norway wants to reduce portfolio’s vulnerability to oil’s tendency to crash.

Norway’s nearly $1 trillion sovereign wealth fund, the Government Pension Fund Global, will be letting go of a chunk of its energy holdings.

The fund, which recently posted $56.6 billion in losses due to 2018’s equity volatility, has wanted to ditch nearly all of its oil and gas assets since 2017. Since a majority of its net worth is in this area, the Finance Ministry decided that was too much. Instead, it plans on the divestment of 150 “upstream” oil and gas companies, worth about $7.5 billion. Those holdings account for 1.2% of all the fund’s equities, and less than 1% of the entire portfolio.

The upstream businesses focus on exploration and production. Cairn Energy, Anadarko Petroleum, and Chesapeake Energy are some of the companies that will be removed from the portfolio.

The goal is to reduce Norway’s susceptibility to ever-volatile oil’s price risk, according to the Ministry. Oil has a tendency to plunge in price, as happened in 2015 and 2016. Divestment, it believes, would open more ways to diversify the fund’s portfolio.

“The objective is to reduce the vulnerability of our common wealth to a permanent oil price decline,” said Minister of Finance Siv Jensen. “Hence, it is more accurate to sell companies which explore and produce oil and gas, rather than selling a broadly diversified energy sector.”

It is now up to parliament to approve the decision. If approved, the upstream firms will be phased out “over a longer period,” said the fund.

“The Government follow the intentions in our advice from 2017,” said Deputy Gov. Egil Matsen. “By removing exploration and production companies, the goal is to make the government’s wealth less vulnerable to a permanent drop in oil prices.”

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