Norway’s sovereign wealth fund has written to the Norwegian Ministry of Finance asking that the fund be permitted to invest in private equity, as it believes that ‘the risk associated with unlisted equity investments could be adequately constrained in the management mandate’. As it stands at the moment the USD1.1tn fund is only allowed to hold stakes in listed companies and can be no larger than 10% of any individual stock. The fund owns an average of 1.5% of every listed company in the world.
In the letter the Norges Bank Investment Management (NBIM) stated that it believes ‘The fund’s size, long-term horizon and limited liquidity needs may make it well-suited to investing in unlisted equity. A broader investment universe may also enable the fund to be invested in different types of company to those that are available in the public equity market,’ adding ‘The bank will invest only if we believe there is reason to expect these investments to help improve the trade-off between risk and return in the fund as a whole. A broader investment universe will thus not automatically mean that the bank actually invests the fund in unlisted equity’.
This is not the first time the fund has asked to invest in unlisted equities. As far back as 2010 the NBIM wanted to change their remit; however, this was met with resistance after it bought shares in Formula 1. At the time chief executive of Formula 1 Bernie Ecclestone had recently settled a corruption case in Germany and there was concern that the fund did not have either the operational management or indeed the head count. NBIM now believes that with improved data highlighting private equity’s outperformance versus other asset classes it is now more adequately equipped to handle the operational demands of an expanded investment strategy into unlisted equities.
As it stands at the moment the fund has just under 66% of its investments held in listed stocks, just over 31.5% in bonds and approximately 2.5% in real estate. The oil fund would like to be given permission to own more than 10 percent of an unlisted company, the same percentage that it’s allowed to own in unlisted property investments.