NORWAY – Norges Bank governor Svein Gjedrem has said the Petroleum Fund will be likely to opt for alternative investments as it grows.
“So far, the Petroleum Fund has no alternative investments, although this option may become more likely as the Fund becomes very large,” Gjedrem stated in a lecture this week.
“The costs of investing in new asset classes may then be divided on larger volumes.”
He said alternatives such as private equity, real estate, commodities and hedge funds have an advantage because “returns show no strong correlation with the return on fixed income instruments and listed equities”.
The central bank manages the NOK1.18trn (€152bn) fund on behalf of the Ministry of Finance.
Speaking at the Polytechnic Association, Gjedrem also said the fund is set to outgrow ABP and CalPERS, the largest funds in Europe and the US. “With the rate of growth that can be expected, the Petroleum Fund will be larger than these two funds in the next year or two.”
He paid tribute to ABP and the Canadian reserve fund, saying “we have learnt a great deal from them about our own fund management”. He cited in particular the diversification of ABP’s portfolios.
But he was not so complimentary about other European funds. He noted a “drawback” in the French national pensions reserve fund, the Fonds de Reserve pour les Retraites.
“One drawback of some of these funds’ structures, such as the French fund, is that they are financed not through increased government saving, but in reality by borrowing.”
The remark follows the Organisation for Economic Cooperation and Development’s comment this week that national pension reserve funds face an “uncertain” future.
With the creation of the new Government Pension Fund, the Petroleum Fund will in effect become the new fund’s international arm. Gjedrem said this amounted to just a “name change”.
Gjedrem concluded: “Ahead of us, we still have at least 50 years, and perhaps more, where the Petroleum Fund or the Pension Fund will, I hope and believe, be an important part of the Norwegian economy.”
The Petroleum Fund announces its third-quarter returns on November 29.