One of the big news stories out this week was the Norwegian SWF’s apparent appetite for the debt of the troubled peripheral economies of the Eurozone (Greece, Portugal, and Ireland), which came as a welcome shot in the arm for the entire Eurozone bond market (though this news actually isn’t new…it’s from mid-August). Still, it’s been hard for some to get a sense for why the GPF-G is keen to hold this debt. And, as Felix Salmon points out, there are some pretty wacky explanations out there.
As for me, I cut to the most straightforward explanation: the GPF-G (NBIM) is perhaps the most widely diversified institutional investor in the world, which means it pretty much owns a small piece of almost everything (it is estimated to own 1% of the global stock market). So, why not throw a bit of sovereign debt from these countries into the mix?
Nonetheless, I do acknowledge the potential for a bit of ‘political intrigue’ here. In reading through the pronouncements of the various interested parties, I’m reminded of when various ME and Asian SWFs spoke out about their intention to stay with the euro, which, in turn, helped to stabilize the currency. In that instance, there was a nagging sense that the pronouncements were a bit self-serving (i.e. they stemmed losses on their Euro portfolio). And, in this instance, Felix Salmon sees something similar:
“I’m also worried about the fact that the Norwegian finance minister is out there talking up his sovereign wealth fund’s book: it introduces an utterly gratuitous level of politicization to a process which should be much more disinterested. If the fund’s managers think that they can outperform their index by loading up on Greek debt, that’s fine. But let’s not turn their trading position into some kind of noble stance: it isn’t, and it shouldn’t be, either.”
True. And another thing to remember is that the Norwegian SWF got into some very hot water when it shorted Icelandic bonds a few years back. To sum up, the trading position of the SWF created a diplomatic incident. Perhaps the SWF has learned its lesson too well?