Nor­way’s wealth fund plans eq­uity shift

The Sun (Malaysia) - - SUNBIZ -

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

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