Sooner or later redistribution profiteers will meddle with any wealthy sovereign wealth fund.

Sir, with respect to “the world’s largest sovereign wealth fund” Norway’s, Richard Milne writes: “The danger is that one of the few sovereign wealth funds based in a democracy could be weakened by political meddling.” “Wealth fund’s abode at risk of becoming Norway political saga” May 9.

I quote from my book “Voice and Noise” from 2006. “My name was put forward as a candidate for the post of Diversification Manager in the Venezuela Investment Fund that was being created in 1974 to handle the oil income surpluses of the nation. I entered the Fund its very first day, and I left a couple of weeks later the same day my desk arrived, utterly frustrated when the Fund was requested [by the politicians in government] to analyze, and obviously endorse, [in one week] the economic feasibility studies of a 4 billion dollar investment known as the Fourth Plan of SIDOR, the big Venezuelan iron and steel complex. With an “if something goes wrong with this project the Venezuelans might have the right to hang us in Plaza Bolívar, and I’m much too young for that” I slammed the door on the public sector …”

Sir, sometimes politicians (redistribution profiteers) will meddle with a sovereign wealth fund after just two weeks, sometimes it will take decades for that, but sooner or later that will always happen, you can bet on that.

@PerKurowski

What if the Norwegian citizens had had the chance to manage their own individual oil funds or share of oil revenues?

Sir, I refer to David Sheppard’s “Norway fund to sell off oil shares” November 17

At first sight we are of course all impressed with that the Norwegian Oil Fund has been able to accumulate US$200.000 per Norwegian. 

The question is though, had the Norwegian oil revenues been paid out to and invested directly by the Norwegians, would they in average have more or less than US$200.000, and would the Norwegians, in average, have been stronger citizens as a result of having to take on that responsibility on their own?

And when we read that what we always thought as the Norwegian Oil Fund or the Norwegian Government Petroleum Fund, is now known officially as the Government Pension Fund Global, the natural question we have is if all that money is now only to go to pensioners? If I was a young Norwegian with ideas of my own and in need of capital, I am not sure I would look too favorably at that possibility.

And let’s be honest about the results. Much of it, or perhaps even most of the financial returns obtained, which are perhaps more than the oil proceeds injected, have been direct consequences of US and Europe having kicked the 2007-08 crisis can down the road, injecting huge amount of liquidity with QEs which, together with the ultralow interests maintained, have inflated all financial assets.

Sir, I was appointed the first diversification manager of the Venezuelan Investment Fund created in 1974, basically a fund very similar to the Norwegian Oil Fund. It took me only two weeks to become convinced it would not work, and so I left.

All this sort of centralized accumulations of wealth sooner or later loose contact with the final beneficiaries and with their original purpose and fast (Venezuela) or little by little (Norway) begin functioning more in terms of the wants and needs of those managing it.

When we now start reading about how that Norwegian fund begins to assign more and more value to issues like sustainability and ethics, which of course is good, we do wonder though how much of that is more based on managerial show-off than on a real mandate from its final beneficiaries.

Again, if I was that young Norwegian in need of capital, or just wanted to construct my own retirement nest, I can easily hear me saying… Great, you do all that but, before you start, give me my share. 

And let’s face it. One reason Norway’s government have been able and willing to set aside oil revenues in the fund is that they receive other type of compensations, like gas/petrol consumption taxes. Norway has the highest gas prices in the world, about $2.40 per liter (Venezuela less than $1 cent per liter)

I hear you Sir. “Here is just a Venezuelan being envious of the $200.000”.

Of course I am envious but, believe me when I say, that as a defender of oil revenue sharing, I would much have preferred my fellow citizens to have only a tenth of that amount, but in the process have learned more of how to stand on their own, and freeing themselves from having to depend on redistribution profiteering governments or fund managers.

PS. What about the Norwegian Fund selling off oil shares? Sounds reasonable but their current 6 per cent invested in the oil and gas sector is not that exaggerated either. Can you imagine what the Norwegians would say if Norway runs out of oil and the Fund stands there with no investments in oil?

@PerKurowski

Even the best sovereign wealth fund, like Norway’s, will in the long run degenerate. Sorry, but that’s life.

Richard Milne comments that the Norwegian sovereign wealth fund, “has become a more active investor, trying to use its growing heft to influence company behaviour “Norway sovereign wealth fund flexes shareholder muscles” March 8.

Sir, I tell you, there will come day, you can bet on it, when a majority of Norwegians will opine “we would have been much better off managing each one of us his share of the net oil revenues, than handing these over to a sovereign wealth fund”. And they will be right.

How do I know? Well that’s how it goes when too few decide on so much wealth… it goes to their heads, and they start doing things for which they have never really been authorized, and then something happens, and then there is nothing to be done about it.

Do I mean that it was wrong of Norway to set up this fund? Not at all, I even wish Venezuela had done that… which it did… but

In 1974, as a recent young MBA, I became the diversification manager of the first Venezuelan Investment Fund set up to manage the nations fast growing oil revenues. It took me only two weeks to understand that it would not work, and so I resigned.

Norway was much further advanced than Venezuela when, in 1990, it set up its fund, and it has clearly done a lot better. Well-done Norway!

Nonetheless, the degenerative forces imbedded in such a fund are just too powerful, even for Scandinavians. The introduction of new objectives, without a clear explanation of what that could entail in reduced returns, is just one example of such forces.

Why do I make this point? Because in my Venezuela, again I hear the voices of those interested in its management, clamoring for something like the Norwegian Sovereign Wealth Fund. And Sir, I trust a thousand times more the citizens to know what to do with their share, than some few experts with everyone’s share.

@PerKurowski