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Norway Oil Fund Wants Infrastructure, Private Equity

Oct. 5 (Bloomberg) -- Norway’s sovereign wealth fund, the world’s second largest, proposed to add infrastructure and private equity investments to increase and safeguard returns on the money it manages for future generations.

“The fund is well-suited to harvesting the liquidity premium from such investments, as the fund has no short-term liquidity needs,” the Government Pension Fund Global said in a letter that was released today with Norway’s 2011 budget.

The $500 billion fund proposed a new structure for its investments, adding a third category including infrastructure projects, inflation-linked bonds and real estate to compliment its listed stocks and bonds. It also proposed to market weight its stock investments, meaning it would need to increase U.S. and Asian stockholdings at the expense of European shares.

The Finance Ministry said today it formed a council with external members that will present an evaluation of the fund’s strategy no later than Dec. 1. Elroy Dimson, an emeritus professor at the London Business School, will head the group. The government said it would comment on the proposals in the letter and the conclusions of the council in the “spring.”

The fund, built from Norway’s oil and gas revenue, gets its investment guidelines from the government and is managed by the central bank. Norway is the world’s seventh-biggest oil producer and second-largest gas exporter. The state requires the fund to keep about 60 percent in stocks, 35 percent in bonds and hold as much as 5 percent in property investments.

Other Real

The new category of investments, called “other real assets,” would come at the expense of the allocations to fixed-income securities, according to today’s letter. A potential increase in investments in unlisted shares would be part of its 60 percent holding in stocks.

“Investments in private equity would represent real assets through ownership of the underlying production capacity at the unlisted portfolio companies,” the fund said. “As a result, any investments in private equity by the fund would be part of the asset class of equity investments.”

The fund invests petroleum revenue outside the country of 4.9 million to avoid stoking inflation and is Europe’s biggest owner of stocks. It’s the world’s second-biggest sovereign wealth fund after the Abu Dhabi Investment Authority. It has had a nominal annual return of 4.33 percent since 1998.

To contact the reporter on this story: Meera Bhatia in Oslo at mbhatia2@bloomberg.net.

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net

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