Posted on Jan 20, 2021 at 6:34 am
The Norwegian sovereign wealth fund, with its 1.066 billion euros in capital, owns more than 9,000 companies. Among these listed groups are possible fraudsters like the German Wirecard, whose share has fallen today to 0.50 euros against nearly 200 at its peak in September 2018.
At the end of 2019, the Norwegian fund held 1.14% of the capital of Wirecard, a German payments group that would soon be in the news, but not for good reasons. The fund had started selling securities in the payments group to reduce its stake to $ 170 million. That year, the group’s action had lost 20% after the revelations of the “Financial Times” on the gray areas of the company (accounting …), pushing the institution to investigate further.
“One of our credit analysts discovered signs of significant accounting fraud and, at the end of 2019, we began to be under-invested in this security compared to its weight in our benchmark index” indicates the fund in its report on equity investment. He continued to sell securities in April and May 2020, when the share was still worth 90 and 100 euros. He sold his last shares on June 18 for between 24 and 40 dollars, before the total collapse caused by the official discovery of a huge hole in the group’s treasury. These early disposals saved it losses and criticism from the Norwegian State, the fund’s sole shareholder.
The fund invested in Wirecard in September 2007, at a price of 8 euros. He hadn’t had a choice. The German company had then entered the DAX 30, which brings together the 30 main German stocks. The sovereign wealth fund buys the main equities of the major markets within a global “index” management, which follows the movements of international equities. A type of “passive” investment which sometimes exposes it to unpleasant surprises.
This is the reason why it has developed internal fraud detection tools, originally primarily intended for the actions of emerging Asian groups. The fund admits that it also uses external sources such as hedge funds. Since he lends stocks to them to sell short, he can identify stocks that are in the fund’s sights.
The fund is not allowed to practice short selling (speculating on the fall of a stock) for its own account, but it uses this tool as a source of information on stock market risks. Most of the risks and the performance of its portfolio come from equities. Almost 70% of it is invested in international stock markets. This is more than a standard pension fund, particularly American, which opts for a “60/40” distribution (60% in shares and 40% in bonds).