Norway’s $850 billion sovereign wealth fund needs to prepare its arguments to persuade lawmakers it can handle an expansion into private equity after an investment in Formula One backfired.
Yngve Slyngstad, the fund’s chief executive officer, and central bank Governor Oeystein Olsen, who oversees the fund, have been summoned to testify tomorrow at a Finance Committee hearing at the Oslo parliament.
“How the fund looks at investments in unlisted companies, that’s definitely a question that I want to ask,” said Torstein Tvedt Solberg, who sits on the committee for the opposition Labor Party.
Politicians are responding to local media reports questioning whether the state-run wealth fund, the world’s biggest, followed its mandate when it invested in Formula One ahead of a planned initial public offering. The fund can only buy private equity if a company is planning to sell shares to the public. Formula One’s IPO was subsequently canceled and its chief executive is now mired in a corruption probe.
Politicians are now debating whether it’s time to review guidelines for how the fund invests in unlisted companies ahead of an IPO.
“I think the Formula One case showed us that the answer to that question is yes, but what I don’t know is how,” said Terje Breivik, a member of the Liberal Party on the finance committee. “We need to be able to get more objective information about” investments in unlisted companies that are planning IPO’s.
The controversy is a set-back for Norway’s wealth fund, which is seeking greater freedom from parliament to expand into more asset classes as its returns lag behind a 4 percent target. The fund, which owns 1.3 percent of the world’s equities, has delivered less than 4 percent, on average, since it started investing in the late 1990s.
The Conservative-led government has said that more analysis is now needed before the fund can be permitted to expand into assets beyond stocks, bonds and real estate.
Limiting its investment scope will impede returns, according to Olsen, who argues the fund must take on more risk. In addition to infrastructure and private equity investments, he advocates raising stocks to 70 percent from the current 60 percent limit. The fund is allowed to hold 35 percent in bonds and 5 percent in real estate. Since expanding into the property market in 2011, the asset class makes up just 1 percent of its total portfolio.
Finance Minister Siv Jensen warned this month against making drastic changes or imposing limits on the strategy of the fund, putting talk of expanding the mandate on hold. She’s also against a move by the opposition to ban the fund from investing in coal producers and has signaled she will resist a call to sell out of oil and gas producers.
The strategy of being a “well-diversified, global financial investor” is “not up for discussion,” she said in an e-mailed comment this month.
Jensen may also face resistance to her plan to fold Norway’s Ethics Council into the fund. The council issues recommendations on which companies should be banned from the fund. The government takes the final decision. The fund is required to take into account rules on human rights, some weapons production, the environment and tobacco when it invests. It has excluded more than 50 companies following recommendations from the council.
“The response to this will be predominantly negative,” said Snorre Valen, a Socialist Left Party politician on the Finance Committee. “So many people are interested in accountability and transparency. If anything we should strengthen the Ethics Council.”
The government’s proposal would mean Norges Bank would have to become “more active in trying to gain influence over the strategy, policy and business of companies it invests in,” said Hans Andreas Limi, a member of the Progress Party that helps forms the minority government.
Norway, western Europe’s biggest oil and gas producer, channels its fossil-fuel income into the wealth fund to shield the $500 billion economy from overheating. The investor got its first capital in 1996, added stocks in 1998, emerging markets in 2000 and real estate in 2011. The government is allowed use the targeted 4 percent return to plug budget deficits.