Norway sovereign fund picks manager for Russian play

Financial News

Jason Corcoran in Moscow

17 March 2009

Norway's $330bn (€257bn) state pension fund, one of the world's largest sovereign wealth funds, has increased its exposure to Russia by two and a half times and hired Prosperity Capital to run a mandate.

Swedish firm Prosperity, which manages about $1.5bn in Russian and CIS equities, said the Norwegian reserve fund’s mandate was its biggest yet, although declined to give details due to client confidentiality.

Mattias Westman, chief executive of Prosperity, said he hoped the faith shown in Russia by a sovereign fund will make other major institutions feel more comfortable about investing in the country. He said: “We have seen an increase in interest in the last weeks. Nothing very big but it’s much more constructive. We have endowments, pension funds and family offices considering further investment.”

A spokeswoman for Norway’s reserve fund said exposure to Russia had increased but declined to comment on individual managers.

The fund does not disclose the size of its mandates, but typically awards between €30m and €160m to new managers, according to its website, as part of a rolling programme.

Russia’s RTS-index of leading stocks has rallied by 15% over the past month after sliding by 75% since last August. Investors are being lured back gradually by the recent bounce in oil prices and signs that the government has managed to stablise the rouble.

The Norwegian reserve fund has outsourced 13% of the fund’s assets, or about €34bn, to external fund managers in mainly emerging markets worldwide and specialised sectors

The fund’s exposure to Russia stood at 0.83% at the end of 2008, according to the fund’s annual report issued on March 11.

The value of Russian companies in its internally managed portfolio increaed by 2.5 times to $840m by the end of 2008. Exposure to Brazil was 0.84% while the other Bric countries of India and China represented 0.77% and 0.79% of investments.

At the end of 2007, the fund has just 14 investments in Russian equities. A year later, its fund managers had stakes in 46 Russian companies, including a 1.04% stake in Ursa Bank, 1% in carmaker Gaz Group and a 1.6% share of retailer M Video.

The fund has also built up exposure to Russia’s recently deregulated electricity sector through a 0.86% stake RAO Energy System East, a 3% stake in OJSC Interregional Distribution Grid Company Co Center and Privolzhya and 1.25% in OJSC Interregional Distribution Grid Company North West.