The Norwegian government has again dismissed the prospect of its sovereign wealth fund investing in unlisted infrastructure despite encouragement from the fund’s manager Norges Bank.
Minister of Finance Siv Jensen said the $860 billion Government Pension Fund Global should not be used as a tool to promote Norwegian foreign or climate policy, as she presented a white paper to parliament. Investments in unlisted infrastructure would pursue such action, the government believes, and would neglect the financial objective of the fund.
“Whether the GPFG should be permitted to invest in unlisted infrastructure investments is not a climate issue, but foremost a question of which risks the fund should be exposed to,” Jensen said. “A transparent and politically endorsed sovereign fund like ours is not well suited to carry the particular risks posed by such investments, compared to other investors. The government is proposing to not permit such investments at this time.”
The issue has become a thorny topic in the country after the government said 12 months ago that the advantages of investing in the asset class “are difficult to quantify”. However, after the Norwegian parliament asked the government to provide a greater risk assessment, it commissioned McKinsey to report on risks associated with investments in the space, although it was not to provide recommendations.
McKinsey’s report published in December said that “exposure to political, regulatory and reputational risks varies from asset to asset” and that examples of damages to the reputation of investors is “highly unusual”. Shortly after the report’s publication, the GPFG’s manager Norges Bank also waded into the debate with a letter to the government recommending investments remain limited to assets in the energy, communications and transport sectors in developed markets in Europe and North America.
However, the government maintains it is difficult to evaluate the performance of such investments and that higher transaction costs and lower liquidity provides further difficulty in divesting assets if they were to become stressed.
Finance Norway, the country’s industry organisation for the financial industry, said it was “surprised” by the government’s decision, stating that the fund’s size and long-term perspective suggests that it is in fact “well suited” for such investments.