Growing evidence shows that instruments such as tariffs, financial sanctions and trade controls are being used to achieve geopolitical goals, a three-member panel of experts said in a report published on Monday, cited by Bloomberg.
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“The political risks to which the fund's investments face abroad are increasing,” the panel said, pointing out that the fund's size and visibility further increase those risks. “The fund could ultimately face higher taxes, regulatory intervention and even confiscation.”
Sovereign wealth funds are state investment institutions managing assets (e.g. shares, bonds) originating from budget surpluses or exports of raw materials.
Geopolitical tensions between the USA and Europe
The report was published after a turbulent period for the world's largest owner of listed shares. The fund faced public outrage last year over its holdings linked to the war in the Gaza Strip. This prompted Norges Bank Investment Management (as the fund is officially called) to sell shares of a number of companies, including Caterpillar, which angered several Republican congressmen in the US, Bloomberg reminds.
This, in turn, prompted Norwegian policymakers to suspend the ethics board advising the fund to prevent further sudden asset sales.
Last week, Norwegian Finance Minister Jens Stoltenberg rejected the possibility of withdrawing from American investments in the face of geopolitical turbulence that calls into question the durability of the transatlantic alliance.
“Friendshoring” and “difficult moral dilemmas”
The working group, led by University of Oslo professor Karen Helene Ulltveit-Moe, admitted there was “no easy way” to manage such risks, adding that a potential strategy “friendshoring” could significantly hamper both risk diversification and returns.
It also said it was difficult to expect “clarity on who is, and more importantly who will be, anyone's friend”, arguing that growing uncertainty should not limit the fund's investment universe.
Friendshoring is a business and political strategy involving the transfer of supply chains and production to allied countries that are politically stable and have similar values.
The group is calling on policymakers to use scenario analysis to better understand political risk, echoing the recommendations of another government-appointed panel that warned in 2022 that the fund would likely face increasingly difficult moral dilemmas.
Source: Bloomberg
