Norway on Sunday said that its $1.3trn sovereign wealth fund would divest its Russian assets worth around $2.8bn. Russian state-owned Sberbank represented the most valuable stake in an individual firm. Other assets include Gazprom and Lukoil.
These companies are also listed by Luxembourg’s pension fund, the Fonds de compensation (FDC), among other investments in Russian businesses.
Sberbank appears with investments with a market value worth €5.6m in the FDC’s 2020 annual report, the latest data available. The US has cut off Sberbank and 25 subsidiaries from its financial system, restricting its access to US dollar transactions. The European Central Bank on Monday warned that Sberbank’s European arm is facing failure after a run on its deposits.
The EU has said it would remove a number of Russian banks from global payments system Swift but has yet to release the list of banks targeted.
A second Russian financial institution--VTB Bank--faces sanctions from the US and the UK, which have frozen assets of Russia’s second-largest bank, leaving it unable to do business with the US or the UK. The pension fund has assets worth just over €503,000 placed in VTB Bank, the 2020 annual report shows. Its deputy president--Denis Bortnikov--is blacklisted in the EU, the UK and the US.
Another blacklisted official--Sergei Ivanov--is the CEO of Russian state-owned diamond mining company Alrosa, in which the FDC owns equities with a market value of around €590,000. As part of its sanctions package, the EU has also banned companies from doing business with Russian Railways, in which the Luxembourg pension fund is invested in at the value of €1m.
The pension fund was created in 2004 to gain revenue from the pension system’s excess funds. The contributions by private sector workers are divided so as to cover costs for pensions currently paid out and reserves managed by the FDC. With a portfolio of around €22bn, the FDC has secured pension payments for four years even if there were no more contributions paid during that time.
But the fund has repeatedly faced criticism for investments in fossil fuels. Here, too, Russian companies feature among the line-up, including Lukoil, Surgutneftegaz, Tatneft and Gazprom. The FDC is also invested in the Moscow Exchange and Russian steel company Severstal as well as owning securities, debt instruments and other assets issued by the Russian government.
“As of 31 December 2021, €90m were invested by the FDC in Russian assets, or 0.37% of the total assets invested,” FDC president Alain Reuter said in an email. “Even before the invasion of Ukraine, Russian assets represented only a very marginal part of [the] FDC’s fund.”
The FDC portfolio managers are “in constant discussion with index providers, market makers and participants to understand and assess the current situation as well as the expectations and implications of any sanctions,” Reuter said. “It is understood that the FDC’s portfolio managers have, since the first signs of tension between Russia and Ukraine, positioned the portfolios entrusted to them in such a way as to protect [the] FDC’s assets and interests as much as possible.”
Russian assets today represent 0.23% of the FDC fund’s total assets, or €53m, split between equities (€17m), bonds (€35m) and cash (€1m).
Norway has given no timeline to divest, Reuter said, adding that shedding the assets would be difficult as the number of potential buyers is shrinking as a result of the sanctions.
Delano has contacted the social security ministry, which oversees the pension fund, for comment.
Updated on 28 February at 4.30pm to include comments from FDC president Alain Reuter as well as correcting investment numbers for VTB Bank.