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Biggest Wealth Fund Urged More Freedom by Norway Liberals

Prime Minister Erna Solberg
Prime Minister Erna Solberg said in an interview last month that infrastructure would be a good fit for the fund. Photographer: Kristian Helgesen/Bloomberg

Norway needs to ease control over its $810 billion sovereign wealth fund to allow it to pursue greater returns, according to the head of the Liberal Party, which supports the minority government in parliament.

“To create very strong lines for what the oil fund should do makes it very difficult,” Trine Skei Grande said in a Jan. 31 interview at parliament in Oslo. “We should put some goals but not instruct it very directly.”

Debate is swirling in Oslo on how to set the mandate for the world’s biggest wealth fund, which is currently restricted to investing only in stocks, bonds and real estate. The new government that took power in October is set to release a white paper in April on its views on how it should be managed. The opposition Labor Party has proposed to restrict the fund from investing in coal producers.

Built from Norway’s oil and gas revenue, the fund has missed a 4 percent return target over the past decade, weighed down by record losses during the financial crisis. The fund, which got its first capital infusion in 1996, has been taking on more risk as it expands, adding stocks in 1998, emerging markets in 2000 and real estate in 2011 to help returns and safeguard the wealth of the western Europe’s largest oil exporter.

Creating Wealth

Oeystein Olsen, governor of Norges Bank which oversees the management of the fund, said in November it would be natural for the fund to enter assets such as private equity and infrastructure. The former Labor-led government had rejected a plea by the fund to be allowed to expand into those assets.

“You should have a fund that is creating more wealth and more money,” Skei Grande said, adding that her party would support broadening the mandate to infrastructure and private equity to spread risk.

Prime Minister Erna Solberg said in an interview last month that infrastructure would be a good fit for the fund.

Still, the fund is also constrained by ethical issues. The government last week lifted a ban for the fund to invest in government bonds from Myanmar as the country transitions into a democracy and placed new restrictions on securities from Syria, Iran and North Korea. The fund is barred from investing in about 60 companies that produce weapons, tobacco or that are linked to human rights or environmental abuses.

Selling Gas

The Labor Party, now in opposition, last year proposed a ban on investments in stocks and bonds issued by coal companies in a bid to promote cleaner energy.

Skei Grande, whose party has pushed for more investment in renewable energy and higher taxes on activities that damage the environment, said the debate over divesting coal companies is “not an important issue.”

“To use the Norwegian oil fund to withdraw from coal is only a way of selling more Norwegian gas,” she said. “You can’t cope with the climate change issue by putting gas into all the areas you have coal.”

Skei Grande backed statements by Solberg, leader of the Conservative Party, that banning coal companies could prove difficult because many of those companies have invested in renewable energy.

“It’s not a black and white issue,” Skei Grande said.

Yngve Slyngstad, chief executive officer of Norges Bank Investment Management which manages the oil fund, last week at a parliamentary hearing in Oslo, said it held 2.5 billion kroner ($400 million) in coal producers at the end of 2013.

Coal is a “small, insignificant” sector for the fund, he said.

The fund returned 5 percent in the third quarter, helped by a 7.6 percent in gain in stock investments. Over the past 10 years, its annual real return has been 3.96 percent.

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