Having commissioned at least two reviews, created two expert panels and considered the possibility of investing in unlisted infrastructure for the past two years, Norway’s government has concluded that the Government Pension Fund Global (GPFG), should not be permitted to invest in unlisted infrastructure at this stage.
“In our view, a number of important factors indicate that investments in unlisted infrastructure should not be permitted,” Norwegian finance minister Siv Jensen said in a statement. “Such investments are exposed to high regulatory or political risk.”
The ministry did, however, acknowledge that investing in infrastructure would expand GPFG’s investment opportunities and could prove profitable, agreeing with the findings of the expert group it formed a year ago, which included a three-member panel and GPFG’s manager Norges Bank. “However, such advantages are difficult to quantify,” the ministry said. It also questioned whether unlisted infrastructure investments could improve risk diversification or increase returns.
The decision comes after the expert group compiled a report that was presented to the Storting, Norway’s legislature, last December.
In addition to exploring the possibility and benefits of investing in unlisted infrastructure, the expert panel – comprising Stijn Van Nieuwerburgh, a professor of finance at New York University; Richard Stanton, a professor of finance and real estate at the University of California, Berkeley; and Leo de Bever, who most recently served as chief executive of the Alberta Investment Management Corporation in Canada – was also tasked with reviewing whether Norway’s wealth fund should increase its cap on real estate investments.
Following the expert group’s findings, the ministry of finance has decided to increase the cap on unlisted real estate investments from 5 percent to 7 percent of the GPFG. Real estate currently accounts for approximately 3 percent of the NOK7.471 trillion (€786.3 billion; $895.3 billion) fund.
At the end of 2015, the majority of the fund – 61.2 percent – was invested in equities, while fixed-income accounted for 35.7 percent of the total.
The Government Pension Fund was created in 1990 to invest revenues generated by Norway’s oil and gas sectors in order to finance rising public pension expenditures. It comprises GPFG and the smaller NOK198 billion Government Pension Fund Norway, which invests primarily in Norway.
It is unclear if and when the Norwegian government might re-consider investing in unlisted infrastructure. According to Jensen, “it would be useful to gain more experience from unlisted real estate before any expansion to additional types of unlisted investment”.
Norway’s infrastructure sector itself proved susceptible to regulatory risk when in 2013 the government decided to cut tariffs for future gas transportation contracts by 90 percent. The cuts went into effect this year but triggered a wave of downgrades at the time for the debt taken out by the private sector to buy into Gassled, the country’s gas transportation network.
The decision was a blow, particularly to Njord Gas Infrastructure, a consortium comprising UBS Infrastructure Fund and CDC Infrastructure, which owned more than 30 percent of the network. Other investors also included the Solveig Gas Norway consortium, which comprises Allianz Capital Partners, Canada Pension Plan Investment Board and the Abu Dhabi Investment Authority.
Last September, the Oslo City Court found in favour of the Norwegian state in a legal action brought against it by Gassled’s investors.