Norway’s central bank seeks to keep management of $1 trillion wealth fund - board

OSLO, (Reuters) - Norway’s $1 trillion sovereign wealth fund should remain a unit of the Norwegian central bank, though a split could be considered if the fund invests in more unlisted assets, the bank’s board said on Thursday.

In June, a government-appointed commission recommended the fund be run by a new state investment company to alleviate pressure on the central bank and allow the two to be managed independently.

Critics of the proposed split have argued that the fund’s risk profile is kept in check by a conservative culture at the central bank and that more independence could ultimately jeopardise the nation’s savings.

“Norges Bank is well equipped to manage the GPFG (fund) and perform central banking task also going forward,” the board of the central bank said in a letter to the finance ministry published on Thursday.

Still, the board added, a closer examination of aspects of the current organisation and governance model could be required.

“If the investment strategy comes to include more unlisted asset classes and the manager is given broader responsibility for investment strategy and ethical assessments, this could count in favour of the management of the fund being organised outside the central bank,” the board’s letter said.

The world’s largest sovereign wealth fund was built with income from Norway’s offshore oil and gas industry and now corresponds to about 2.5 times its annual gross domestic product.

At the end of the second quarter, the fund had invested 65.1 percent of its value in stocks, 32.4 percent in bonds and 2.5 percent in unlisted real estate.

Next year the government may decide whether to allow the fund to invest in new asset classes, including unlisted shares and unlisted infrastructure projects, to boost its rate of return, a step that would be supported by the fund’s existing managers.

The aim of the bank’s proposal was to offer a choice to Norwegian politicians to decide what the fund should be in future, the governor of the central bank told Reuters. Parliament is ultimately responsible for the fund’s regime.

“We are well prepared to continue the job (of supervising the fund),” Oeystein Olsen said. “But were the management mandate to be changed in several ways, then it would strengthen the argument to move the fund out of the central bank.”