Norway’s sovereign fund urged to invest in infra

The leading opposition party is to propose a motion to broaden the $870bn institution’s mandate, while a recent government-commissioned report advocates for changes to allow for more investments in illiquid assets.

The Government Pension Fund Global, Norway’s sovereign wealth fund, is under increasing pressure to invest in infrastructure, recent developments in the country suggest.

The $870 billion institution, which owns an average of 1.3 percent of all listed equities in the world, is so far confined to investing in stocks, bonds and properties abroad. But the mandate of the Oslo-based fund, which was set up in 1990 to invest Norway’s oil and gas wealth, could be changed in years to come to allow for investments in illiquid assets, including infrastructure.

The Labour Party, the largest in Norway’s parliament, said this week it plans to propose a motion early next year that would broaden the institution’s remit to include infrastructure, starting with renewable energy. The fund, which declined to comment, is currently allowed to buy listed stocks or bonds of companies that run infrastructure projects but can’t invest in them directly unless the project company itself becomes listed.

The motion stands a good chance of passing through, according to reports, with the majority of parties looking ready to back or open to discuss the proposal. The determining factor will most likely be the government’s reaction – which rejected similar proposals in 2011 but said it was open to revisit them in the future – and the attitude of the ruling Conservatives and Progress Party.

Internal developments at the fund could also facilitate the move. At a Ministry of Finance seminar earlier this week, Yngve Slyngstad, chief executive of Norges Bank Investment Management, endorsed the findings of a government-commissioned report urging for the fund to take more risks.

Norges Bank manages the Government Pension Fund Global on behalf of the Ministry of Finance, which owns the fund.
The fund is presently restrained in its ability to take risk as it is forbidden to deviate more than one percent from its benchmark index. Andrew Ang, Michael Brandt and David Denison, who authored the report, recommended raising this “tracking error” limit, for example by lifting it to 1.75 percent.

They also advised that the fund adopt a so-called “opportunity risk model”, which allows fund managers to invest in illiquid assets such as private equity or infrastructure as long as they beat a simple benchmark, usually made up of a mix of public equities and bonds.

“The framework proposed by Professor Ang and his colleagues may facilitate a gradual introduction of additional private investments to the fund’s universe,” said Slyngstad during the seminar.

The report noted that the model is “extensively” used by the likes of Canada Pension Plan Investment Board (CPPIB) and Singapore’s GIC, which rank among the largest direct institutional investors in infrastructure, private equity and property. Denison is a former president and chief executive of CPPIB.