World Economy

Norway’s Biggest Wealth Fund to Test Fortunes in Asia

Norway’s Biggest Wealth Fund to Test Fortunes in AsiaNorway’s Biggest Wealth Fund to Test Fortunes in Asia

Norway’s $890 billion fund, which considers high-frequency trading a scourge in global financial markets, is taking steps to avoid the practice as it spreads in Asia, Bloomberg reported.

The fund, which owns about 1.3% of the world’s equities, has already started to cut back on its use of algorithmic trading to dodge HFT traders who might be trying to pre-empt its moves in the US.

HFT “is now gaining some momentum in Asia–we’re definitely following it and we have to do a lot of work on the individual markets,” said Oeyvind Schanke, head of asset strategies at the fund. “The whole specter of trading venues has been catering to high-frequency trading activity, whereas we would like it to focus more toward the institutional need.”

Schanke has 10 people working in Oslo, the fund’s main office, and in hubs in New York, London and Singapore, looking for ways to cut transaction costs and retain profits when trading in large blocks. Now, he’s worried about markets such as Japan.

Norges Bank Investment Management, which runs the wealth fund as part of the central bank of Norway, held about $90.2 billion in Asian stocks at the end of last year. It holds $511.5 billion in stocks globally and is Europe’s biggest equity investor. The fund’s stock holdings returned 7.5 percent in the first quarter, while the total portfolio rose 5.3 percent.

  Slow Trading

Critics like Schanke say high-frequency traders harm other investors by sniffing out their strategies and completing the juiciest trades first. Large investors break up their big stock trades and execute them over the course of minutes or hours to disguise their plans.

But if the big investor keeps pumping orders into the market for hours, HFT firms switch roles: They start mimicking trades, making it more costly for them to buy or sell, according to a new paper from VU University Amsterdam’s Vincent van Kervel and Albert J. Menkveld.

Norway’s fund for the first time provided trade data for the study, along with three other investors. Schanke, who oversees decisions on the companies and instruments the fund investments in, generally prefers slow trading for big orders.

“We could choose to wait four days before we execute in the hope that during the course of those four days we will find a natural counterparty to cross this up with,” he said. “We would rather decrease the impact costs and take the opportunity cost risk that arises from it.”