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Norway Once Again Rejects Private Equity for $1 Trillion Fund

Updated on
  • Government studying to allow renewable energy infrastructure
  • Biggest wealth fund has sought private equity to spread risk

Siv Jensen

Photographer: Chris Ratcliffe/Bloomberg

Norway’s government again declined to allow its $1 trillion wealth fund to invest in private equity, saying it would pose a challenge to its transparency and cost level.

“The management of our common savings is good,” Finance Minister Siv Jensen said in Oslo on Tuesday. “It’s transparent, responsible, long-term and cost-effective.”

The government went against both the wishes of the fund and the recommendation of a government-appointed expert group. The fund, which last year was allowed to raise the portion it invests in listed stocks to 70 percent, has been seeking to add new asset classes to spread risk and generate higher returns in an age of record low interest rates.

Read more on fund’s proposal for PE investments

While the fund’s value has soared in the decade since the global financial crisis, it’s coming to a crossroads as inflows from petroleum production have dried up and its managers warn that returns can’t be expected to keep up the same pace in the years ahead.

Sony Kapoor, managing director of Re-Define, said parliament should act to override the minority government’s decision on private equity. “Because as much as 75 percent of global growth now comes from developing economies that have a much smaller proportion of economic activity captured by listed firms, being unable to invest in private equity means that the fund registers lower returns,” he said.

But the government did open up for potentially allowing the fund to invest in renewable energy infrastructure, something wanted by activists and which now has broad backing in parliament. That comes after the government last year rejected giving the fund a broad mandate to invest in infrastructure.

The government is looking at expanding the fund’s environmental related mandates to also possibly include renewable energy infrastructure, according to Jensen.

The debate over new asset classes for Norway’s fund has been going on for years, led both by concerns over returns and discussions over whether it should invest more in renewable-energy infrastructure. Although most Norwegian political parties insist the fund shouldn’t be a foreign-policy tool, the investor has become more activist. It has banned investments in tobacco, some types of weapons and coal, and excluded companies for human rights and environmental violations.

Read Gadfly on the decision here

The fund also shocked markets in November when it proposed to dump oil and gas stocks to reduce risk for Norway’s overall wealth, already highly dependent on petroleum. The assessment of that proposal is continuing and a decision is expected in the fall.

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