The manager of Norway’s giant sovereign wealth fund (SWF) told the government yesterday that the idea of including unlisted equity generally in its NOK13trn (€1.2trn) portfolio should be looked into.
Norges Bank, Norway’s central bank and manager of the Government Pension Fund Global (GPFG), also said in a letter to the finance ministry responding to a recent key report that there should be a review of its mandate for the SWF, given the radical proposals that were now on the table.
The report, entitled ‘The fund in a changing world’, was presented by an official commission led by Norwegian professor Ulf Sverdrup in September, with the expert panel having been tasked with considering “long-term perspectives” for the GPFG.
The lengthy report covered much ground, and included recommendations for some fundamental changes to the way the Nordic country’s SWF is managed, such as giving Norges Bank a more flexible, more general mandate stipulating principles, and allowing possible divergence from the benchmark index.
In the letter to the finance ministry published today, the governor of Norges Bank, Ida Wolden Bache, and Nicolai Tangen, chief executive officer of the bank’s subsidiary Norges Bank Investment Management (NBIM), which manages the fund, said Norges Bank shared the commission’s overall views.
While the experts had been asked to consider which national and international economic and political developments might be relevant to the GPFG in years to come, Norges Bank said its response concentrated on how possible developments might affect the fund’s investment strategy and its management of it.
One point made by the Sverdrup commission was that if a large proportion of global value creation moved out of the listed market, the implications of that for the GPFG’s investment strategy would have to be considered.
As things stand, the GPFG is not generally allowed to invest in unlisted equities.
Norges Bank said in the letter that it was seeing more and more indications that a larger share of value creation was taking place in the unlisted market, with the market for unlisted equities having grown in size in relation to the listed equity market.
It said the unlisted market had grown to 8% of the listed market globally, from 5% in 2017, and mentioned a number of other related developments.
“These trends may mean that the fund misses out on an increasing share of companies’ value creation by waiting until they are listed and eventually enter the fund’s benchmark index,” Norges Bank said.
“Norges Bank believes it should be investigated whether the fund’s investment strategy should reflect these trends, and whether unlisted equities in general should be included in the fund’s investment universe,” the bank said in the letter.
Wolden Bache and Tangen concluded their letter by calling for an overall review of the mandate setting out the fund’s investment strategy.
“The mandate has become more extensive and more detailed over time,” the pair said, adding that the commission had recommended that the ministry consider whether a more general and principles-based mandate might be appropriate.
“Norges Bank believes that it may be useful to conduct a fresh review of the management mandate for the GPFG in the light of the commission’s report,” said the bank.