SWFs Lose $5 Billion on BP Oil Spill; PIMCO's El-Erian on the 'New Normal'

(June 16, 2010) — Data compiled by Bloomberg shows the governments of Norway, Kuwait, China and Singapore have lost $5 billion on BP Plc’s share price collapse since the Gulf of Mexico oil spill started in April.

“BP was the Goldman Sachs of the oil industry,” said Christine Tiscareno, an analyst at Standard & Poor’s in London, to Bloomberg. “They were attractive because they had high dividends, were winning environmental awards and had done so well with exploration and production. If I were an investor, I would feel this is an unfair situation.”

While the Kuwait Investment Authority held 328 million shares of the company, Norway’s state fund held 336 million shares, or 1.79% of the company, a stake that’s dropped 1.1 billion pounds in value since the April 20 explosion aboard a rig in the Gulf of Mexico that killed 11 workers, Bloomberg reported. The Kuwait Investment Authority held 328 million shares, the People’s Bank of China had 1.1% of BP, and the Government of Singapore held 1.07%.

Among private fund managers, BlackRock ranks as BP’s largest shareholder with 1.1 billion shares, about 4% of which is with an index fund, iShares, and not actively managed. “As a matter of company policy, we cannot comment on individual holdings,” confirmed BlackRock spokesperson Melissa Garville.

The second-largest BP shareholder is Legal & General Group Plc with a total of 751 million shares.

Separately, Mohamed A. El-Erian, chief executive officer of Pacific Investment Management Co., wrote in a publication by the International Monetary Fund that sovereign wealth funds are poised to profit from a reshaping of the global economy, which he called the “new normal.” The manager of $1.1 trillion in Newport Beach, California, forecasted that during the next three to five years, the world economy will undergo below-average economic growth, more regulation and an increased natural rate of unemployment.

El-Erian wrote: “Sovereign wealth funds are at an advantage when it comes to managing the bumpy journey to the new normal: their stable and patient capital and long-term orientation in investment objectives put them in an excellent position to make a first move. Indeed, the question should not be whether this pool of patient capital is able to pursue a first-mover strategy — it is. The question is whether it is willing to do so. The demands on operational processes will test the responsiveness of sovereign wealth funds’ governance structures, the robustness of their investment processes, and the effectiveness of their internal and external communication activities.”