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Thursday 2 October 2014

Norway to examine return on $850bn wealth fund before restructuring

Saleha Mohsin and Mikael Holter

Published 09/04/2014 | 02:30

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Oeystein Olsen, governor of Norway's cental bank
Oeystein Olsen, governor of Norway's cental bank

Norway will wait to see whether property investments by its $850bn (€616bn) sovereign wealth fund pay off before considering new asset classes including infrastructure and private equity.

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"Whether we do it next year or the year after, that hasn't been decided," Paal Bjoernestad, state secretary in charge of the fund at the Finance Ministry, said. "We will come back to it – it's not off the table."

Prime Minister Erna Solberg's Conservative-led government, in power since October, has backed away from pre-election talk of restructuring the fund and is now signaling any changes to the world's largest sovereign investor are likely to be slow.

The approach is at odds with calls from within the central bank-managed fund, which has argued in favour of a broader investment mandate to help it reach a 4pc return target.

The fund, which owns 1.3pc of the world's equities, has delivered less than 4pc on average since it started investing in the late 1990s. Central Bank Governor Oeystein Olsen says it must take on more risk to raise returns. In addition to infrastructure and private equity investments, he advocates raising stock holdings to 70pc from the current 60pc.

The fund is allowed to hold 35pc in bonds and 5pc in real estate. Since being freed to expand into the property market in 2011, the asset class makes up just 1pc of its total portfolio.

Norway channels its fossil-fuel income into the wealth fund to shield the $500bn economy from overheating. As Norway's oil wealth grows, the fund has come under increased political scrutiny. It is estimated to reach $1.2 trillion by 2020.

The previous Labour-led government rejected the fund's pleas in 2011 to buy infrastructure and private equity, citing costs and low returns. The fund's efforts to broaden its mandate have also been hampered by controversy over its investment in Formula One.

The fund can only buy private equity if the company is planning an initial public offering. Formula One's IPO was cancelled. (Bloomberg)

Irish Independent

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