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Norway's sovereign wealth fund eyes private equity

Norwegian private equity — According to the central bank, the fund should increase exposure to unlisted companies

Nicole Tovstiga
10 January 2018

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The Government Pension Fund of Norway, the world's largest sovereign wealth fund, is considering investing in or alongside private equity funds as part of a gradual approach to diversifying its assets.

In a letter to Norway's finance ministry on 8 January, the central bank's management arm Norges Bank Investment Management (NPIM) advised that the $1.1tn wealth fund should be able to invest in unlisted equities in a big potential shift in strategy.

A response from the Ministry of Finance could be expected by the second quarter this year, a spokesperson for NPIM told unquote".

In terms of timeline for a response, the decision lies with the government, but normally the ministry addresses advice in a white paper during the spring, the spokesperson added.

The possible implementation of a private equity investment strategy would depend on the ministry's pending decision.

According to the central bank's recommendations, the fund should be allowed to invest more than 10% in unlisted companies.

Currently, the fund is allowed to invest in unlisted companies where the board has expressed an intention to seek a stock exchange listing. With companies often deciding against a public listing in the exit process, NPIM stated is has to date made little use of the option of investing in pre-IPO companies.

The mandate differs slightly for unlisted real estate investments, in which the bank can take ownership stakes in excess of 10% through separate legal entities and different types of financial instruments.

In September 2017, Norway's sovereign wealth fund surpassed the $1tn mark for the first time.

The country's central bank is currently seeking to make the wealth fund less vulnerable to the permanent drop in oil prices. In November 2017, it recommended cutting oil and gas companies from its benchmark index, which would mean divesting from stocks in one of Norway's most significant sectors.

As the largest investor globally, the wealth fund is said to own on average 1.5% of every listed company in the world. Downsizing exposure to the energy sector could mean more opportunity to invest in private equity funds and unlisted companies in other sectors of the economy.