Norway Debates $800 Billion Wealth Fund’s Investment Options

Norway’s central bank Governor Oeystein Olsen said it would be natural for the nation’s $800 billion sovereign wealth fund to expand the asset classes it invests in as the new government considers how best to deal with the fund’s growth.

Olsen signaled support for a 2010 recommendation, which was rejected the following year, for the fund to invest in infrastructure and private equity as the new administration of Prime Minister Erna Solberg reviews its investment mandate.

Growth in the wealth fund, into which Norway channels most of its income from oil and gas, is already creating investment hurdles, Chief Investment Officer for Equities Petter Johnsen said on Nov. 1. The fund has more than quadrupled since 2005 and will grow to 5.34 trillion kroner ($875 billion) by the end of next year, the government estimates. The fund in 2010 was allowed to invest 5 percent in real estate, expanding from just placing money in bonds and stocks.

“We’ve achieved this 5 percent share in real estate and we’re working with filling that gap,” Olsen said yesterday in an interview in Oslo. “Right now there are no immediate plans of making new requests but when the fund expands, the signal that was given by Norges Bank in 2010 was quite natural.”

White Paper

The Norwegian government releases a white paper on the fund’s management each year to parliament, usually in April, where it outlines any changes to the fund’s strategy.

Finance Minister Siv Jensen in an interview last week scaled back talk of restructuring the fund as a way to deal with its size, a model that Solberg had discussed before the September elections. The government aims “at a predictable and stable investment strategy for the fund,” Jensen said on Nov.

19. “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.”

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.

The fund is mandated to hold about 60 percent in equities, 35 percent in bonds and 5 percent in real estate. Chief Executive Officer Yngve Slyngstad said last month he’s no longer using new inflows to buy more stocks, which he said were headed for a “correction.” The fund returned 5 percent in the third quarter, representing 228 billion kroner.

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