Norway’s finance ministry is proceeding with the idea of including unlisted equity in the Government Pension Fund Global’s (GPFG) asset mix for the first time, and has asked the sovereign wealth fund’s manager Norges Bank Investment Management (NBIM) for a more detailed assessment of the potential asset allocation change.
In its 2023 white paper on the Government Pension Fund – which includes the NOK14.1tn (€1.2trn) GPFG and the smaller Government Pension Fund Norway (GPFN) – the ministry said: “The Bank has in a letter of 27 March 2023 been requested to examine various aspects of unlisted equities, as a basis for the ministry’s further consideration.”
This year’s white paper on the SWF, released on Friday, focuses largely on the wide-ranging report on the fund published last September by the officially-commissioned expert panel led by Ulf Sverdrup.
That report included discussion about unlisted equity investments, which the GFPG is currently only permitted to hold in cases where a company is seeking a listing.
In their response to the Sverdrup report, the governor of Norges Bank, Ida Wolden Bache, and Nicolai Tangen, chief executive officer of NBIM, said in January that a general inclusion of unlisted equity in the fund’s investment universe should be investigated.
The unlisted equities market had grown in size to 8% of the listed market globally, they argued, from 5% in 2017.
In its letter to NBIM of 27 March, the ministry noted that back in 2018, after an overall assessment, the government had decided not to open up the GPFG for unlisted equity investments on a general basis.
However, in the light of Norges Bank’s January letter, the ministry said it was now requesting the bank to “review the market for unlisted shares and assess to what extent changes in key conditions that formed the basis of the previous assessment should have an impact on the fund’s investment strategy”.
Since unlisted shares had last been assessed, the ministry said, NBIM had gained more experience in managing unlisted assets.
The GPFG began holding unlisted real estate investments in 2011, and made its first investment in unlisted renewable energy infrastructure 10 years later in 2021.
But overall, the ministry said the Sverdrup Committee believed that the main principles behind the investment management model remained the best route for addressing new risks.
“The report does not provide any basis for making changes to the investment strategy at the present time,” the ministry said.
Presenting the white paper, minister of finance Trygve Slagsvold Vedum said: “The Government Pension Fund is important for the financing of public welfare for both current and future generations. The government emphasises sound, good and long-term management of the pension fund.”
The white paper also includes a new review of active management of the GPFN, saying that while the domestic and Nordic part of the SWF was still being managed close to the index, the active management undertaken by the GPFN’s manager Folketrygdfondet had resulted in an excess return of NOK40bn between 2007 and September 2022, after investment management costs.
“The Ministry’s assessment is that the management performance has been good overall, and that the GPFN should continue to be managed with a certain element of active management,” it said in the paper.
The tracking error limit of three percentage points stipulated in the mandate should be kept unchanged, it added.