NORWAY - The governor of Norges Bank, the Norwegian central bank and the chief executive of Norges Bank Investment Management (NBIM), which manages the assets of Norway's Government Pension Fund-Global (GPFG), have written a letter to the ministry of finance outlining ways of improving the overall strategy of the fund by including less liquid asset classes such as private equity and infrastructure.
In the letter, Svein Gjedrem, the central bank's governor, and Yngve Slyngstad, head of NBIM, said the recent turmoil in financial markets might warrant a "fresh assessment" of the basis for the current rules.
"The principles for determining the fund's benchmark portfolio, the definition of the fund's investment universe and increased investment in less liquid assets affect every aspect of the investment strategy," they added.
They also argued that other asset classes such as investments in timberland, farmland, patents, commodities and insurance products were often included in the portfolios of other large, long-term investors.
"As Norges Bank builds up experience and expertise in less liquid investments in real estate, private equity and infrastructure, it will be natural to consider further expansion of the investment universe," they said.
Earlier this year, GPFG began its first foray into property investments after a rule-change allowed the inclusion of the asset class with up to a 5% allocation.
Apart from property, the fund's strategic asset allocation is 60% equities and 35% fixed income instruments.
In their letter, Gjedrem and Slyngstad said there was reason to consider changing the current strategic asset allocation, with allocations to equity instruments, fixed income instruments and real estate, so that it "better reflects the portfolio characteristics of the different types of investment"
"We have previously recommended that the fund's investment universe be expanded to include investments in private equity and infrastructure," they wrote.
"Assuming such a change, the fund's investment universe will approach what is usual for comparable funds.
"The fund is well-suited to bearing the risk and harvesting potential gains from investments in less liquid assets, as the fund does not have short-term liquidity needs. Nor is the fund subject to rules that could require adjustments to the portfolio at inopportune times."
Separately, the Norwegian government has also decided to abolish the Government Petroleum Insurance Fund, with assets of NOK21bn (€2.6bn), also managed by Norges Bank, as the government no longer believes a separate fund is necessary to mitigate extraordinary volatility in the oil industry.
Instead, the assets will be transferred to the GPFG by the end of the year.
In addition, the Norwegian ministry of finance has excluded three companies from the portfolio of GPFG on the recommendation of the Council of Ethics because of their contribution to "grossly unethical activity".
The three companies are the Israeli companies Africa Israel Investments and Danya Cebus and the Malaysian company Samling Global. The divestment from these companies has now been concluded.