Norway's government steers sovereign wealth fund away from PE

Nicole Tovstiga
11 April 2018

Tweet
Facebook
LinkedIn
Google plus
Send to

The Norwegian finance ministry has vetoed the proposal to allow its $1tn sovereign wealth fund to invest in private equity.

Investing in unlisted assets poses challenges to cost effectiveness and transparency, the ministry said in a white paper published on 10 April.

"The management of our joint savings is sound," said finance minister Siv Jensen. "The fund is managed in a transparent, responsible, long-term and cost-effective manner."

Both Norges Bank, the country's central bank, and Folketrygdfondet (FTF), which manages the equity and fixed income portfolios of the government's pension fund, have performed well over time, she added.

With its decision made, the government has gone against both the fund's proposal and the recommendation of a government-appointed group of investment experts.

According to a recommendation by the central bank's management arm Norges Bank Investment Management (NPIM) outlined in a letter on 8 January, the fund should be allowed to invest more than 10% in unlisted companies.

Last year, the fund had received the green light 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.

Thus, it has been considering investing in or alongside private equity funds as part of a gradual approach to diversifying its assets, seeking to spread risk and generate higher returns as interest rates continue at a record low.

A decision to allocate part of its assets to private equity would have been a momentous boon for the industry – 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.