Norway SWF to shut China office, sees Singapore as 'recruiting hub'

Norway's Government Pension Fund Global, the world's largest sovereign wealth fund (SWF), has begun winding down operations at its China representative office in Shanghai.

The decision is driven by “operational considerations” and is only “an adjustment of our operating business model”, a statement from Norges Bank Investment Management (NBIM) said.

NBIM manages the operations of the wealth fund. The SWF had invested in about 850 Chinese companies with a total value of around $42 billion at the end of 2022.

The office shutdown is not expected to affect the fund's investment strategy or investments in China, it said in a statement on Sept 7.

The fund's Asia operations will be carried out from Singapore going forward. 

“Over the years, our Singapore office has increasingly served as the hub for the whole of the Asian region and has been built up to take care of all operational functions, including for China.”

The wealth fund has 45 employees in the Singapore office. 

“In Singapore, we have dedicated resources on everything from portfolio management to investment support and IT.  We also see Singapore as a good hub for recruiting,” NBIM deputy chief executive officer Trond Grande told AsianInvestor.

The closure of the China office doesn’t mean the fund will gradually scale back its China exposure, he said.

NBIM's Shanghai office, which opened in November 2007, employs eight staff. The fund said it will ensure that the closing process is conducted in an orderly manner for all affected persons at the office.

The fund is in dialogue with them on future arrangements and cannot offer more details as of now, Grande said.

He confirmed that the head of NBIM’s Shanghai office is Norwegian and is based in Shanghai.

A source with knowledge of the matter told AsianInvestor that the person is in charge of external affairs in China, but had been in Norway during three years of the Covid-19 outbreak.

At the end of 2022, the Norwegian fund held 418 billion kroner ($39.2 billion) in public equities and fixed income in mainland China and Hong Kong. Tencent, Alibaba, AIA Group, Meituan, and Hong Kong Exchanges and Clearing comprised the fund's largest equity holdings by value.

Its exposure to emerging markets, a category that China belongs to, is predominantly in equities.

However, compared to the end of 2022, NBIM’s exposure to emerging market equities shrank from 10.9% to 10.3%, with China’s weighting down to 3.4% from 3.8%.

ALSO READ: GIC, Temasek lead sovereign investments in China with $133bn

The closure of NBIM’s China office comes at a time when several financial institutions are reviewing their presence in China, amid a stricter regulatory environment and ongoing geopolitical tensions.

Earlier this month, Canada's top pension fund CPP Investments, reportedly laid off at least five investment professionals in its Hong Kong office, a sign it is stepping back from deals in China.

ALSO READ: Greater China property chief at Canada’s largest pension fund exits

In April, Ontario Teachers' Pension Plan (OTPP) also shut down its China equity investment team in Hong Kong, and stopped stationing country-specific stock-picking teams in Asia.

NBIM's Deputy CEO Grande told Reuters in August that its biggest worry geopolitically "is a world where the two superpowers are increasingly in competition with each other and hence creating a decoupled (world economy)."

“Business environment is tough in China,” said a senior executive in the Greater China financial advisory industry, noting that it is not as easy as the old days for foreign firms to make money in China, especially as the economy slows.

An employee working at a foreign consulting firm in Shanghai told AsianInvestor that the Norwegian fund's move is not a surprise.

He added that geopolitical tensions and a tightening regulatory environment have weighed more on foreign financial firms operating on the mainland, than the country's slow economic recovery. 

"2008 was tough as well. But we didn’t see many foreign firms withdrawing,” he said.