Norway’s $740 Billion Fund May Be Restructured, Solberg Says

Norway needs to review its $740 billion sovereign wealth fund to find a more competitive model that will boost returns, according to the head of the opposition bloc leading in polls ahead of elections next month.

The investments “might be too big to be handled by just one fund,” Erna Solberg, leader of the Conservative Party and the candidate most polls show will oust Labor leader Jens Stoltenberg to become prime minister after Sept. 9 elections, said in an interview in Oslo. “You could split it either on getting different handlers to compete better, or have different objectives for your investments in different funds. We’re going to explore it, develop and see if it’s a good idea.”

Norway’s government uses money from its sovereign wealth fund, the world’s biggest, to pad its budget. Though use of the fund is limited to 4 percent, the amount of money that figure represents is growing. The oil fund has quadrupled in size since 2005 and will grow about 50 percent by 2020, the government estimates.

“The structure has not been revised” since the fund was created in 1996, Solberg said. “We are a party that believes in competition. If you have different bodies running it, you will have a little bit more competition to see who gets the best results.”

The krone gained 0.4 percent to 7.8561 per euro as of 3:22 p.m. in Oslo.

Profit Seekers

The Government Pension Fund Global, the oil fund’s official name, returned 5.4 percent in the first three months of the year, the Oslo-based investor said April 26. Stocks returned 8.3 percent, while bond investments rose 1.1 percent. Real estate investments lost 0.3 percent.

“It’s all about one thing: increasing the return on our investments without taking more risks,” Solberg said. “We are long-term investors with the fund, we are not short-term profit seekers.”

Solberg, who leads a bloc that also comprises the anti-immigration Progress Party, had her best poll result last month with 41 percent of Norwegians saying they want her to lead the nation. Stoltenberg’s support was 29.2 percent in the same poll.

The Conservatives have pledged to lower taxes and boost spending on roads, railways, education and research and development. Stoltenberg has argued Norway needs to extend its welfare model, which is financed by the oil fund.

Overheating Risk

Both Solberg and Stoltenberg have sought to entice voters with campaign promises that risk stoking demand further in Norway’s $480 billion economy. Economists, including Nordea Bank AB’s Thina Saltvedt, caution against relying too much on the oil fund as the economy shows signs of overheating.

Norway’s gross domestic product, excluding income from offshore industries, will grow 3 percent in 2013, the central bank estimates. That compares with a 0.4 percent contraction in the euro area, the European Commission said in May.

Europe’s biggest equity investor, which gets its investment guidelines from the government, is mandated to hold 60 percent in stocks, 35 percent in bonds and 5 percent in real estate, while allowing for fluctuations. Norway’s oil fund mostly follows global indexes, though it has some leeway to stray from those benchmarks.

Capturing Growth

The fund, which posted its second-best year in 2012, is shifting its strategy to capture more of global growth. It’s moving asset allocation away from Europe as emerging markets in Asia and South America gain a bigger share of output. It’s also retooling its bond portfolio to a gross domestic product weighting from a market weighting to avoid nations with growing debt burdens.

Norges Bank Investment management “doesn’t comment on changes in the funds structure,” Marthe Skaar, a communications adviser at the fund, said in an e-mail. “These questions should be directed to the Norwegian Ministry of Finance.”

Norway generates money for the fund from taxes on oil and gas, ownership of petroleum fields and dividends from its 67 percent stake in Statoil ASA, the country’s largest energy company. Norway is western Europe largest oil and gas producer. The fund invests abroad to avoid stoking domestic inflation. Solberg said a Conservative government would seek to cut the state’s Statoil holding to 51 percent.

The oil fund got its first capital infusion in 1996 and has been taking on more risk as it expands globally. It first added stocks in 1998, emerging markets in 2000 and real estate in 2011 to boost returns and safeguard wealth. It’s struggling to meet a 4 percent return target after rates plunged to record lows and global stock markets failed to retrace a 2007 peak.

“If you split it, it might be a good principle,” Solberg said.

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