Fund rebuffed in bid for private equity

Norway’s $1-trillion sovereign wealth fund, the world’s largest, should not be given permission to invest in unlisted companies, the finance ministry said in recommendations to parliament on Tuesday, rejecting the fund’s own advice.

The fund invests Norway’s oil and gas revenues in stocks, bonds and property abroad and is one of the world’s biggest shareholders with stakes totalling 1.4% of all listed firms.

“Unlisted equity investments would challenge the management model based on transparency, low management costs and a limited degree of active management,” the finance ministry said in its white paper on the fund.

The fund has argued that investing in unlisted shares, primarily via private equity, could help improve its balance between risk and return, naming Uber and Airbnb among missed opportunities due to the current restrictions.

“We are concerned about the reputation of the fund. Openness is very important for the fund’s legitimacy, its trust,” Finance Minister Siv Jensen said. “It is very likely that the lack of [public] information in those investments would be problematic.”

The fund already has permission to take stakes in companies that have a clear intention to list, which it can still exploit, the ministry said.

The Re-Define think-tank, which has previously called for the fund to invest in private equity, said parliament should overrule the minority centreright government.

“For a fund with the large size and long-term horizon of Norway’s oil fund, it is important to be able to invest in economic opportunity and growth, whether they are captured by listed securities or not,” said Re-Define MD Sony Kapoor.

In November 2017 the fund recommended dropping oil and gas stocks from its equity benchmark index to reduce Norway’s exposure to oil price fluctuations, a proposal that sent energy stocks lower at the time.

The finance ministry said on Tuesday it would present its assessment of the proposal later in 2018.

It said it would consider whether to allow the fund to take direct stakes in unlisted renewable energy infrastructure projects but only as part of the fund’s present environmental mandate. Those investments amounted to 75-billion Norwegian krone ($9.59bn) at the end of 2017, said the white paper.

“The assessment will be based on the same requirements for transparency, return and risk that apply to other investments in the sovereign wealth fund,” said Jensen.

Norwegian life insurer KLP, with $85bn of assets under management, welcomed the decision. If parliament went ahead, “the pension fund will benefit from a more diversified portfolio with long-term, stable cash flows”, said KLP CEO Sverre Thornes.