Norway SWF should invest in infra, report argues

Despite its long-standing reticence towards the idea, Norway’s sovereign wealth fund should start investing in unlisted infrastructure, according to a pro-renewables think tank.

A paper released this week by the Cleveland-based Institute for Energy Economics and Financial Analysis said the country’s $880 billion Government Pension Fund Global, the world’s largest sovereign wealth fund, should invest 5 percent of its assets in unlisted infrastructure, including renewables. Norway’s government has not allowed the fund to invest in the asset class, citing exposure to “high regulatory or political risk”.

Such risks are real but manageable, the IEEFA report countered, while the opportunities are enormous. The report noted that 62 percent of sovereign funds already invest in infrastructure, with well-managed investments bringing returns of 12-15 percent annually.

“Global investment markets in renewable energy infrastructure are growing rapidly, returns are reliable, and the sector benefits from a positive outlook,” the report said.

Norges Bank, which manages the fund, has called for investments in real assets since 2006, saying the GPFG should be allowed to invest up to 10 percent in infrastructure or real estate. But the finance ministry has resisted opening up the fund – set up in 1990 to invest Norway’s oil and gas wealth – to infrastructure, rejecting the asset class again last April after years of review.

This issue will be up for discussion once more this spring, with Norway’s parliament weighing in.

In addition to establishing a 5-percent infrastructure mandate, the paper recommended the fund invest in experienced staff, create co-investment partnerships, and invest in emerging renewables markets and stocks of utilities engaged in renewables. Assets such as solar plants and wind farms “yield returns and retain value”, the paper said.

Norway’s government has had a hand in creating some of the political risk of which it warns. In 2013, the government decided to cut tariffs for future gas transportation contracts by 90 percent, dealing a blow to investors in Gassled, the country’s gas transportation network.

IEEFA’s stated mission is to “accelerate the transition to a diverse, sustainable and profitable energy economy and to reduce dependence on coal and other non-renewable energy resources”. The report said its recommendations are “based upon the Fund’s interest in maintaining solid returns and in prudently managing risks” but added that changes in asset allocation strategy would be trendsetting.