Norway’s $870 Billion Fund Closer to Expanding Asset Pool

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Norway’s $870 Billion Fund Closer to Expanding Asset Pool


Category: Accounting / Financial

Norway moved a step closer to deciding whether its sovereign wealth fund, the world’s largest, will be allowed to broaden its investments to include infrastructure as part of a strategy to increase returns.

The government will ask the $870 billion fund’s Strategy Council to assess whether the Government Pension Fund Global — the fund’s official name — should invest in unlisted infrastructure, the Finance Ministry said today. It will also look into raising the 5 percent cap on real estate investments.

“There are challenges to entering infrastructure,” Paal Bjoernestad, a state secretary at the ministry, said today in a phone interview. “We need to balance that against the possibility of spreading risk.”

The government has so far hesitated to let the fund expand into unlisted investments such as infrastructure and private equity. The previous Labor-led administration in 2011 rejected the Strategy Council’s recommendation to allow such a move, citing “limited historical returns” on the asset class.

Infrastructure is typically linked to higher “political risk,” and withdrawing from an investment would be “more demanding” than equities or bonds, Bjoernestad said.

The Benefits

The fund is mandated by the government to hold about 60 percent in stocks, 35 percent in debt and 5 percent in properties. The investor, which gets its capital from Norway’s oil and gas wealth, has been lobbying to be allowed to move into new assets such as private equity to boost returns.

Today’s study has the backing of the government’s parliamentary support parties, the Christian Democrats and the Liberals, which both said they pushed for it in budget negotiations.

“This is a strong signal from the parliamentary majority for new thinking,” Hans Olav Syversen, a Christian Democrat member of parliament and chairman of the Finance Committee, said by mobile phone. “There are good chances that this will be a reality in a few years.”

While private equity has also “been considered” by the government, it will look into the merits of investing in the asset class at a later stage, Bjoernestad said.

Read the full article here.

Source: Dagens Næringsliv

Published: February 12, 2014