Norway to Review Oil Fund's Equity Investment
Source: Dow Jones News
OSLO—Norway's government ordered a review Friday to determine whether the nation's sovereign-wealth fund should increase its exposure to global equity markets in a bid to lift returns.
The move comes as the oil fund, managed by Norway's central bank, considers slowing down the pace of its diversification into real estate because it can't find enough attractive properties. The fund is also suffering from a period of weak bond returns.
"We'll assess whether returns can be boosted by increasing the share of equities and taking on more risk," Finance Ministry State Secretary Paal Bjornestad said.
The review will be conducted by a nine-member committee chaired by Handelsbanken senior economist Knut Anton Mork. It will include former finance ministers Sigbjø rn Johnsen and Kristin Halvorsen and will produce a report by October.
Because of the fund's sheer size—the world's biggest wealth fund by assets, with a $820 billion portfolio—any change in its equity mandate would have a global impact.
Under current rules, the fund invests 60% of its money in shares. The balance goes to bonds, 35% and real estate, 5%.
But the question of whether the fund is too risk averse is also a question closer to home.
"We've asked two former finance ministers to join the committee, because the risk tolerance of the Norwegian people is partly a political question," Mr. Bjornestad said.
After years of rapid growth, the fund—formally known as the Government Pension Fund Global—has become a cornerstone of the Norwegian economy. In 2016, 12.5% of government spending will be derived from the fund, the value of which is more than twice the size of Norway's yearly output.
The fund has changed its strategy several times before. After its inception in 1996, it invested only in fixed income, but added equities from 1998 and real estate from 2011.
During the financial crisis, when other investors off loaded shares, the fund was a big buyer. As a result, it suffered huge losses in 2008, but gained most of it back when markets rebounded the following year. The fund came out of the financial crisis as one of the world's biggest shareholders. At the end of 2014, it held on average 1.3% of all global listed shares, including a 7% stake in BlackRock, 2% in Royal Dutch Shell, and a 0.7% stake in each of Apple, Microsoft and Exxon Mobil.
Changes to resource allocation must be approved by Norway's Parliament. The government said it planned to conclude the process in 2017, but any change to the fund's mandate could take years to take full effect.
Write to Kjetil Malkenes Hovland at kjetilmalkenes.hovland@wsj.com
(END) Dow Jones Newswires
January 08, 2016 13:45 ET (18:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Source: Dow Jones News
OSLO—Norway's government ordered a review Friday to determine whether the nation's sovereign-wealth fund should increase its exposure to global equity markets in a bid to lift returns.
The move comes as the oil fund, managed by Norway's central bank, considers slowing down the pace of its diversification into real estate because it can't find enough attractive properties. The fund is also suffering from a period of weak bond returns.
"We'll assess whether returns can be boosted by increasing the share of equities and taking on more risk," Finance Ministry State Secretary Paal Bjornestad said.
The review will be conducted by a nine-member committee chaired by Handelsbanken senior economist Knut Anton Mork. It will include former finance ministers Sigbjø rn Johnsen and Kristin Halvorsen and will produce a report by October.
Because of the fund's sheer size—the world's biggest wealth fund by assets, with a $820 billion portfolio—any change in its equity mandate would have a global impact.
Under current rules, the fund invests 60% of its money in shares. The balance goes to bonds, 35% and real estate, 5%.
But the question of whether the fund is too risk averse is also a question closer to home.
"We've asked two former finance ministers to join the committee, because the risk tolerance of the Norwegian people is partly a political question," Mr. Bjornestad said.
After years of rapid growth, the fund—formally known as the Government Pension Fund Global—has become a cornerstone of the Norwegian economy. In 2016, 12.5% of government spending will be derived from the fund, the value of which is more than twice the size of Norway's yearly output.
The fund has changed its strategy several times before. After its inception in 1996, it invested only in fixed income, but added equities from 1998 and real estate from 2011.
During the financial crisis, when other investors off loaded shares, the fund was a big buyer. As a result, it suffered huge losses in 2008, but gained most of it back when markets rebounded the following year. The fund came out of the financial crisis as one of the world's biggest shareholders. At the end of 2014, it held on average 1.3% of all global listed shares, including a 7% stake in BlackRock, 2% in Royal Dutch Shell, and a 0.7% stake in each of Apple, Microsoft and Exxon Mobil.
Changes to resource allocation must be approved by Norway's Parliament. The government said it planned to conclude the process in 2017, but any change to the fund's mandate could take years to take full effect.
Write to Kjetil Malkenes Hovland at kjetilmalkenes.hovland@wsj.com
(END) Dow Jones Newswires
January 08, 2016 13:45 ET (18:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
