NORWAY - The governor of the Norwegian Central Bank has again called for investment guidelines on the NOK2.8trn (€351bn) Pension Fund Global (NPFG) to be relaxed, allowing it to invest in private equity.
Addressing the Norwegian Polytechnic Society, governor Svein Gjerdrem also confirmed that the country's sovereign fund would soon make its first real estate investment in a bid to diversify.
Gjerdrem said the fund should be allowed to invest in companies about to list themselves on the stock market, as certain private equity firms could provide high returns.
He added: "I doubt the fund will become a big investor in private equity firms in the near future. Selecting good companies is demanding, and management fees are high. Many are highly leveraged, and the sector's behaviour is procyclical."
Gjerdrem said Norges Bank Investment Management (NBIM), which manages all funds on behalf of the state, would also soon make its first investment in a new, third asset class, which it called 'real assets', better enabling the fund to meet long-term objectives.
"Real estate purchases, an example of assets in this class, will commence in the near future," he said.
"The dividing line between real estate and infrastructure is not very clear, and looking further ahead, it may be natural to invest in assets that can be classified as infrastructure."
He added that inflation-linked bond investments could also soon be included in this category.
Until recently, the NPFG was limited to allocating 60% of funds to equity, with the remaining 40% invested in bonds.
In March, it unveiled new guidelines that would allow it to invest 5% in real estate in a bid to reduce risk.
This was followed by a letter from Gjerdrem and Yngve Slyngstad, head of NBIM, to allow for more illiquid investments.
The governor also said the NPFG now had assets in excess of NOK3trn, which accounted for 120% of the country's GDP.
He added that funds were expected to account for more than 200% of Norway's domestic product over the next decade.