Norway Wealth Fund Wins Labor Backing to Buy New Asset Classes

Norway’s largest political party will back a request by the nation’s $860 billion wealth fund to expand into new asset classes.

Provided the appropriate controls are in place, the opposition Labor Party sees no reason to stand in the fund’s way, said Jonas Gahr Stoere, Labor’s representative and first deputy chairman on the parliament’s finance committee. The decision marks a departure from Labor’s stance while in power. In 2011, the party blocked the wealth fund’s efforts to move into private equity and infrastructure investments.

“To enter into new areas is something that, in principle, we’re not opposed to,” Gahr Stoere, who is also a former foreign minister, said in an interview at his office in parliament. “It will require from the central bank and the ministry a very detailed consideration about control mechanisms and what kind of setup you need to be a responsible owner of such assets.”

The 53-year-old is the front-runner to become Labor Party leader to replace Jens Stoltenberg, who is stepping down to take over as secretary general of the North Atlantic Treaty Organization.

Labor was ousted from office in September elections, handing power over to a Conservative-led coalition. The government has said it will wait and see how the fund handles its expansion into real estate, which started in 2011, before letting it try out new asset classes.

There Yet?

The fund’s efforts to broaden its mandate have been hampered by controversy surrounding its purchase of a stake in closely held Formula One. The investor is only allowed to buy private equity if a company is planning an initial public offering. Formula One’s IPO was subsequently canceled.

The transaction “highlighted the complexities of these investments and it highlighted the challenge of having proper control mechanisms,” Gahr Stoere said. “It illustrates that these are issues that need to be very thoroughly studied -- and we’re not there yet.”

The fund, which owns 1.3 percent of the world’s equities, has delivered less than 4 percent in real returns, on average, since it started investing in the late 1990s. Central bank Governor Oeystein Olsen says the fund must take on more risk to raise returns. In addition to infrastructure and private equity, he advocates raising stock holdings to 70 percent from the current 60 percent.

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. It got its first capital in 1996, added stocks in 1998, emerging markets in 2000 and real estate in 2011. The government is allowed to use the targeted 4 percent return to plug budget deficits.

“The fiscal rule makes sense. We are really sensitive to not overheating” the economy, said Gahr Stoere. “But having 4 percent as a target for what the fund should bring back in return, I understand is still a fair ambition, considering the world economy at large.”

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