Biggest Wealth Fund Urged to Explain Formula One Investment

Norway’s $850 billion sovereign wealth fund, the world’s biggest, is being called on by lawmakers to prove it didn’t shirk its own rules with a 2012 investment in Formula One.

Politicians are responding to local media reports questioning whether the state-run fund followed its mandate when it invested in the auto racing group 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.

“The fund should consider whether the time has come to provide some answers,” Hans Olav Syversen, a Christian Democrat who heads the parliament’s finance committee and is a key supporter of the minority government, said yesterday in an interview. “Given the public’s strong interest in this, it wouldn’t hurt.”

The controversy risks halting a push by the fund to win permission to invest in private equity as it struggles to reach a 4 percent return target. The Conservative-led government, which will present a white paper on the fund next month, has signaled it may be willing to expand its investment mandate to include private equity and infrastructure, in addition to the stocks, bonds and real estate it’s currently allowed to buy.

Even if the investment was within the mandate, we now “have to ask if the mandate is good enough,” Syversen said.

‘Unfortunate’ Beginning

Eva Karin Dahle Rabben, a spokeswoman at the Finance Ministry, said that Finance Minister Siv Jensen wouldn’t comment on the matter until she has responded to parliament.

Svein Flaatten, a spokesman for the Conservatives, said he’s “positive to” allowing private equity. “But we have to look more closely at the framework. And the starting point to this was unfortunate. It’s a reminder that this is a bit more complicated than ordinary listed stocks and bonds.”

The fund in May 2012, along with BlackRock Inc. and Waddell & Reed Financial Inc., bought a 21 percent stake in Formula One from CVC Capital Partners Ltd. for $1.6 billion.

Norwegian newspaper Dagens Naeringsliv said the investment in Formula One was in a company based in Jersey and that it also includes a loan, in a so-called stapled security.

‘Many Questions’

The investment, the first in an unlisted company, raises “many questions” on a possible expansion of the mandate since it can conflict with a commitment to openness, Syversen said. If the mandate were expanded, it “would need to be within a solid framework” including provisions for openness, social responsibility and against tax evasion, he said.

While the opposition Labor Party, the biggest in parliament, is keeping “all doors open” to new assets classes, it now expects the Finance Ministry to review the Formula One investment.

“This case clearly shows both the need for, and challenges linked to, openness and supervision” of investments in unlisted companies, Labor lawmaker Torstein Tvedt Solberg said by phone. “It’s good to have this example as we’re now starting the debate on private equity, so we can make sure future decisions are made with a good framework and rules on openness, transparency and supervision.”

The finance committee, led by Syversen, will at a hearing following the government’s white paper ask the fund’s supervisory board and NBIM’s Chief Executive Officer Yngve Slyngstad for clarification.

Big Returns

The fund will “of course provide answers to parliament should it become a topic at the hearing next month,” Marthe Skaar, a spokeswoman, said in an e-mail, adding that it’s bound by confidentially agreements to a certain extent. The fund invested in Formula One because it saw “a big potential for good returns” and after a thorough risk analysis, she said.

There’s no time limit on how long the fund can hold the investment before an IPO takes place, she said.

Norwegian central bank Governor Oeystein Olsen, who oversees the fund, yesterday defended the investment.

“The mandate says that we are allowed to invest in this kind of security and we are clearly inside the mandate,” he said after speech in Trondheim. “The decisions on individual investments are a task for Norges Bank Investment Management, so usually not for the board. In this case, since it’s a special investment, the board has been informed from day one.”

He also said the bank hasn’t been silent on the investment and has made itself available to explain. “We are here and we speak out,” he said.

Oil Revenue

The fund, which gets its investment guidelines from the government, held 61.7 percent in stocks, 37.3 percent in bonds and 1.0 percent in real estate at the end of 2013. It’s mandated to hold about 60 percent in stocks, 35 percent in debt and 5 percent in properties. While the investor mostly follows global indexes, it has some leeway to stray from the benchmarks.

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.

The first capital was put into the fund in 1996 and it has since been expanding the scope of its investments. It first added stocks in 1998, emerging markets in 2000 and real estate in 2011 to boost returns and safeguard wealth.

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