Norway’s wealth fund plans equity shift

OSLO: Norway’s sovereign wealth fund, the world’s largest, should raise the proportion of its investments in equities to 75% from 60% to boost returns, the central bank, which manages the fund, recommended yesterday.

“A higher equity allocation means that the expected return on the fund will increase,” central bank deputy governor Egil Matsen said in a speech.

A majority of members on a government-appointed commission last month recommended an increase of equities to 70%, although the group’s chairman dissented, saying the holding should instead be cut to 50% to reduce volatility.

“The realised return ... may differ considerably from expectations. In order to maintain the investment strategy over time, a good understanding and broad acceptance of this risk are essential,” Matsen said.

Made up of revenues from Norway’s extensive oil and gas industry, the rainy-day fund began saving cash in 1996 to preserve wealth for future generations and protect the country’s economy from shortterm swings in the oil market.

The increased equity holding would boost the expected 30-year return of the fund to 3% per year from the 2.6% which was estimated if the equity allocation remained at 60%, said the central bank.

On a 10-year basis the expected return would rise to 2.5% per year from 2.1%, it added.

The recommendation will now be sent to the Finance Ministry.

If a change was made today, it would mean the world’s largest sovereign wealth fund, currently valued at US$862 billion (RM3.8 trillion), would move about US$129 billion into equities away from government bonds, whose low interest rates drag down the fund’s return.

Governments are only allowed to spend an average 4% of the fund each year under the so-called fiscal spending rule, and this may be tightened even more.

The fund can currently invest 60% of its assets in equities, 35% in fixed income and 5% in real estate. – Reuters