Norway Group to Study Equity-Share Change for $815 Billion Fund

Norway set up a committee to review whether to change the $815 billion sovereign wealth fund’s equity share and possibly allow the investor to boost the current 60 percent allocation as it struggles to reach return targets.

Knut Anton Mork, a senior economist at Svenska Handelsbanken in Oslo, will lead the effort along with Sigbjoern Johnsen and Kristin Halvorsen, the predecessors of Finance Minister Siv Jensen, the ministry said in a statement. It will analyze the fund’s expected return and risk with different equity allocations and can propose changes in a report due by Oct. 15. That will be addressed by a government white paper the following spring.

“The choice of the equity share is the most important decision for expected returns and risk for the fund in the long term,” Jensen said in the statement.

Norway is looking for ways to boost returns that have barely reached a net real return goal of 4 percent amid low interest rates. The country is also facing shrinking income from oil and gas production, which feeds the fund, amid a collapse in crude prices. The Conservative-led government is already studying whether to allow the fund to invest in unlisted infrastructure and raising its allocation in real estate.

Norway’s central bank, which manages the fund for the Finance Ministry, has called for an increased allocation in equities. Still, that’s not necessarily what the new committee will propose even if it does advise the government to change the fund’s mandate, Mork said.

Predictable Returns

“I don’t have any presumption that it should be an increase if there should be a change,” he said in a phone interview. The expected 4 percent return is “supposed to cover public expenses for public services, which authorities want to be delivered regularly and predictably over time, without big fluctuations. If the fund takes big risks, the fund’s value will fluctuate and the 4 percent figure will also fluctuate.”

The committee is also expected to consider whether a possible change in the equity share should have consequences for other parts of the investment strategy, such as the composition of the reference indexes for stocks and bonds, the ministry said. The ministry announced in October it would study the impact of a change in the equity allocation of the fund.

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