Norway’s SWF dealt PE blow

A government white paper cited transparency issues and management fees as reasons why the $1trn fund should not invest in unlisted equities.

Government Pension Fund Global, the world’s largest sovereign wealth fund, should not invest in private equity, Norway’s finance ministry has warned.

A government white paper published on Tuesday said it did not propose to open the NKr8.1 trillion ($1 trillion; €844.2 billion) fund to unlisted equities on a general basis beyond its existing remit. GPFG’s manager – Norges Bank Investment Management – is mandated only to invest in unlisted companies whose boards have expressed an intention to seek listing in the public space.

“Unlisted equity investments would challenge the management model based on transparency low management costs, and a limited degree of active management,” the ministry said in a statement.

The government convened a panel of experts in August to assess whether GPFG should be allowed greater freedom to invest in private equity. The group comprised associate professor Trond Døskeland of the Norwegian School of Economics and professor Per Strömberg of the Stockholm School of Economics, who also serves as a board member for the sixth AP fund.

GPFG’s reluctance to invest in private equity does not come as a surprise; the fund described its first direct investment, in CVC Capital Partners-owned motor-racing franchise Formula 1, as “a mistake”, in 2013 when the company became mired in allegations of corruption. The pension acquired the stake in June 2012 and declined to comment on the returns it made when the business was sold in January 2017.

GPFG had a 66.6 percent allocation to equity investments, 30.8 percent to fixed income and 2.6 percent to unlisted real estate as of 31 December, according to its website. It achieved a 13.7 percent return for 2017, up 0.7 percent on its benchmark index, according to its latest annual report.

It is not the first institutional investor to shy away from private equity. At a Pensions and Lifetime Savings Association Investment Conference in March, sister publication Private Equity International found that many of the pension fund managers, trustees and advisors in attendance viewed private equity as one of the least attractive illiquid asset classes, amid complaints over a lack of transparency, liquidity issues and uncertainty over how private equity would fit in with the ongoing UK pension pooling.

Other sovereign wealth funds are more enthusiastic. Panama’s $1.4 billion Fondo de Ahorro de Panamá intends to start investing in the asset class towards the latter part of 2018 and will allocate 5-10 percent of its assets to private equity through fund investments, funds of funds and secondaries.