Norway’s sovereign wealth fund, which is worth $1.6 trillion and is the world’s largest, has been forbidden by the government from investing in private equity at the moment.
This is a setback for the fund’s management, as Norway’s central bank had recommended investing up to 5% of the fund’s assets, which corresponds to around $80 billion, in private equity.
However, Finance Minister Trygve Slagsvold Vedum has said that the government has concluded that investing in unlisted stocks is not a good idea at this time.
He cited higher fees, lower transparency of information, and the need for a broad political consensus as the reasons for this decision.
“We will continue to consider it,” he added.
According to State Secretary Ellen Reitan, the need for stability at home during a time of political instability abroad played a role in the decision.
During an interaction with Reuters, Ellen Reitan said, “In unstable times, it is important to have calm around important institutions, and the oil fund is definitely one of them. It has been a success story, with a key factor being the calm surrounding its administration.”
The finance ministry intends to create an independent expert council for the fund, which will provide input for future decision-making on topics such as investment in unlisted equities.
The fund expressed positivity towards the ministry’s desire to further assess the possibility of including unlisted shares in its mandate.
“We look forward to meeting the Finance Committee in parliament later this month to answer questions on the topic,” it said in an email statement.
In the past, Parliament has disapproved of proposals to move the assets into private equity, citing the potential high costs and potential hindrance in evaluating ongoing performances.
The adoption of private equity could have offered the opportunity for the fund to invest in companies that are yet to be listed, including the rapidly growing technology sectors, such as artificial intelligence.
Critics have argued that the fund should stick to its decades-long successful investment strategy of tracking global stock market indexes. However, supporters of private equity argue that unlisted companies have become a rapidly growing and larger part of the economy.
The CEO of the fund, Nicolai Tangen has shared that the current combination of high interest rates and a relatively low number of new stock market listings globally makes it an opportune time for the fund to deploy capital via private equity investments.
The fund, which invests Norway’s surplus oil and gas revenue abroad, is the world’s largest single stock market investor, owning approximately 1.5% of all globally listed shares, and has stakes in over 8,800 companies.
Apart from foreign government and corporate bonds and unlisted real estate in major cities, it also possesses a small but growing portfolio of infrastructure projects such as wind farms.