Norway’s SWF: no to private equity, yes to green infrastructure
Norway’s giant sovereign wealth fund has been denied permission to invest in private equity – but the country’s government has opened the door to an allocation to green energy infrastructure.
In the report published yesterday, the Norwegian Finance Ministry said it would discuss with Norges Bank – which runs the NOK8.1trn (€842bn) Government Pension Fund Global (GPFG) – the possibility of investing in privately held companies intending to seek a listing.
However, the ministry said: “Based on an overall assessment, the Ministry of Finance does not propose that investments in unlisted equities should be allowed in the GPFG on a general basis.”
The decision went against Norges Bank’s recommendation made in January that the fund be allowed to extend its investment universe to include unlisted equities.
“Whether to allow unlisted equity investments in the GPFG is a matter of weighing advantages and disadvantages,” the ministry said in its report.
Even though the GPFG’s large size and liquidity could give grounds for expecting a somewhat higher return on private equity than that of the average investor, it said such advantages were uncertain. It also argued that the contribution to the fund’s overall risk and return would be limited.
Credit: Rachel Fixsen
“At the same time, unlisted equity investments may affect the reputation of the fund and challenge key characteristics of the current management model,” the ministry added.
It also cited the lack of transparency of private equity funds and their relatively high costs.
“The ministry is also taking into account that the equity share is now being increased to a level where it may be inappropriate to expose the GPFG to other types of risk,” it said.
The finance ministry also rejected allowing the GPFG to allocate to unlisted infrastructure.
However, it indicated that it was open to investments in renewable energy infrastructure, saying it would follow up on a comment from the Standing Committee on Finance and Economic Affairs about expanding the fund’s investment universe in the near future.
The ministry said it would assess “whether unlisted renewable energy infrastructure investments can be effected within the scope of the special environment-related mandates, with the same transparency, return and risk requirements as apply to the other investments in the GPFG”.
GPFG to cut fixed income?
The sovereign wealth fund could also remove corporate bonds and exposure to 20 currencies from its portfolio. The ministry said it was taking more time to decide whether to make a big reduction to its bond allocation.
Last autumn, Norges Bank recommended narrowing the fixed-income benchmark index to comprise solely nominal government bonds with duration of less than 10.5 years, and issued only by the US, the UK or euro-zone countries.
“The ministry finds that additional analyses are needed and has therefore appointed an expert group to assess the fixed income investments in the GPFG,” it said. The ministry planned to present its assessment in next year’s annual report.
The finance ministry has yet to make a decision on three other ongoing issues for the GPFG. It said it was still considering:
- whether the fund should cut the oil and gas sector out of its investment universe;
- the Gjedrem Commission’s proposals on changes to the management of the GPFG; and
- Norges Bank’s idea of using Norwegian rather than foreign holding companies for its unlisted real estate investments.