Norway Drops Talk of Restructuring $800 Billion Wealth Fund

Norway’s government backed down from pre-election talk it might restructure the nation’s $800 billion sovereign wealth fund as it instead defends the investor’s existing mandate.

“We aim at a predictable and stable investment strategy for the fund,” Siv Jensen, finance minister and leader of the junior partner in Norway’s ruling coalition of Conservative and Progress parties, said today in an interview in her office in Oslo. Asked whether the fund may yet be split, Jensen said “the government has no plans to do that. There will be no changes in the investment profile of the fund.”

Prime Minister Erna Solberg, who ousted the Labor-led coalition of her predecessor Jens Stoltenberg in September elections, promised a month earlier to look into restructuring the nation’s wealth fund after it quadrupled in size since 2005. Even inside the fund, its size has been raised as a hurdle that is complicating investment decisions.

Petter Johnsen, the fund’s chief investment officer for equities, said on Nov. 1 that the “challenge that we have, and we have already experienced, is the size.”

Jensen, whose party entered government for the first time since being formed as an anti-tax movement in 1973, is now signaling that talk of reorganizing the fund, into which Norway channels its oil and gas wealth, may have been premature.

Spending Rule

“If we receive any recommendations from the fund, we will consider them carefully and we will evaluate if we think it is necessary to make any changes,” Jensen said. “We will inform the parliament in due time.” She declined to say whether her government thinks the fund is now too big.

Norway’s government uses money from its 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 fund has quadrupled in size since 2005 and will grow to 5.34 trillion kroner ($877 billion) by the end of 2014, according to government estimates.

Norway started the oil fund back in 1996 in an effort to avoid overheating the $500 billion economy by buying offshore assets. Yet the investor’s growth has partly undermined those efforts and Norway is now Scandinavia’s richest economy, struggling to contain an overheated housing market.

Seeking Debate

The 4 percent rule, imposed under a Labor government, to limit public spending from the fund has come to represent ever larger sums. Norway’s Christian Democrats, whose support the minority government needs to pass measures in parliament, said it’s time to place more limits on oil-wealth spending to protect the economy from overheating.

“It’s not a limit, because no one will use 4 percent,” Knut Arild Hareide, leader of the Christian Democrats who head parliament’s finance committee, said in an interview this month. “We are ready for a debate now.”

Jensen said her ministry doesn’t take the fund’s growth into account when analyzing public spending options.

“It will be the analysis on the development of the economy that will set the standard for how much money we can put into the economy from one year to another,” Jensen said. “I think we all agree that’s the basic idea.”

Before it's here, it's on the Bloomberg Terminal.