Norges Bank Investment Management, Norway’s sovereign wealth fund, tried again to get approval from the country’s government to invest in private assets and again heard no, at least for now. The finance ministry said a council would study the matter.
The bank manages $1.59 trillion in assets, in a portfolio that is 70.9% equities and 27.1% fixed income. Real estate comprises another 1.9% of the fund’s investments, renewable energy infrastructure makes up 0.1% of the fund. These four asset classes are the only ones in which NBIM invests, however, it has long sought to make allocations to the private markets.
The Norwegian Ministry of Finance turned down the private-markets request, saying that private investments charge overly high fees. The fund, which made the latest request in November, had made a similar request in 2018.
The government issued its decision on the latest request in a white paper released on Friday. The document called for the establishment of an expert council to review NBIM’s proposals on investing in private markets. The council will be established sometime later this year.
“The government does not wish to open for unlisted equities now,” wrote Norway’s Minister of Finance Trygve Slagsvold Vedum in the paper. The council, he added, will be independent and its expertise will give the ministry a “better decision basis and broader debate about all aspects of investments in unlisted equities.”
The paper also stated that high fees associated with private equity managers, as well as the difficulty of measuring risks, compared with listed equities, are reasons that NBIM should be blocked from PE funds. Besides, NBIM is mandated to cap fees from external managers, and the paper said private equity managers are unlikely to accept that.
But the ministry did note that there is a potential for private equity investments to outperform the average investor’s return.
“It will, however, not be possible to eliminate all risk associated with the non-financial aspects of unlisted equity investments,” the white paper stated. “Given the information currently available to the ministry, the ministry does not wish to expand the investment universe to generally include unlisted equities.”
NBIM in a November letter had expected to be able to allocate between $40 billion and $70 billion dollars to a private equity strategy, making up roughly 3% to 5% of the fund’s portfolio.
NBIM’s letter argued that private assets would render higher returns over time. “It is our assessment that permitting investments in unlisted equities would be a natural evolution of the investment strategy,” said Ida Wolden Bache, chair of Norges Bank’s Executive Board, in a November 2023 press release.
“An increasingly larger share of global value creation takes place in the unlisted market.”
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Tags: Ida Wolden Bache, NBIM, Norges Bank Investment Management, Norway, Private Markets, Sovereign Wealth Fund, SWF, Trygve Slagsvold Vedum