Norway’s SWF one step closer to infra investment

Norway’s Ministry of Finance has said it will consider whether the Government Pension Fund Global should invest in the asset class.

Norway’s Ministry of Finance will task its Strategy Council with assessing whether the country’s sovereign wealth fund (SWF) should be allowed to invest in infrastructure after the Government Pension Fund Global (GPFG) has come under increasing pressure to expand its investment mandate.

“Developing the Fund’s investment strategy through diversification will help to ensure continued robust, long-term management of the Fund,” Minister of Finance Siv Jensen said in a statement.

To date, the $870 billion fund has only been allowed to invest in stocks, bonds and real estate. As for infrastructure specifically, the GPFG can buy listed stocks or bonds of companies that run infrastructure projects but cannot invest in them directly unless the project company itself is listed.

The Strategy Council will also consider whether adjusting the 5 percent cap on real estate investments is appropriate, the ministry said in the statement. It did not specify, however, in which direction that adjustment would be made.

In addition to the Strategy Council, the Finance Ministry – which owns GPFG – will also take advice from Norges Bank, manager of the fund.

The composition and mandate of the Strategy Council will be announced at a later date, while a final evaluation will be presented in a parliamentary white paper in the spring of 2016, the Ministry said.

“If general investment in unlisted infrastructure is permitted, Norges Bank will also be allowed to invest in unlisted infrastructure in the renewable energy sector and emerging markets,” according to the statement.

Asked what percentage of the fund would be allocated to infrastructure should investment in the asset class be approved, the Finance Ministry said in an e-mailed response that a “mandate to the Strategy Council […] soon will be published on our webpage.”

The Government Pension Fund Global was created in 1990 to invest in Norway’s oil and gas wealth.

Many have urged the fund to invest in infrastructure including the Labour Party, the largest in the country’s parliament, as well as the authors of the Review of the Active Management of the Norwegian Government Pension Fund Global, a government-commissioned report published in January.

In the report, the authors – Andrew Ang, Michael Brandt and David Denison – recommended that the fund be allowed to deviate from its benchmark index by 1.75 percent rather than the 1 percent currently in force.

They also advised that GPFG adopt an “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 comprising a mix of public equities and bonds.