Norway Asks Sovereign Wealth Fund to Consider Adding Unlisted Equities

The Norwegian government has asked the manager of its $1.3 trillion Government Pension Fund Global to “examine various aspects” of unlisted equities and assess whether the sovereign wealth fund should add the asset class to its portfolio.

Although the pension giant is permitted to invest in unlisted real estate and unlisted renewable energy infrastructure, it is currently not allowed to invest in unlisted equities. The concern with the investments has been that they are less liquid than listed equities and could be difficult to sell if necessary. However, as activity in unlisted equities increases, that liquidity would presumably also increase.

The recommendation was part of a recent white paper published by the Norwegian Ministry of Finance, which included sections evaluating how international economic and political developments may affect the pension fund.

The white paper referenced a government-appointed committee that discussed various characteristics of unlisted investments and noted that an increasing share of global economic activity has been taking place in unlisted companies. The paper also mentioned a March 27 letter the ministry sent to Norges Bank, Norway’s central bank and manager of the GPFG, in which it asked the bank to look into allowing the pension fund to invest in unlisted equities.

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In a letter sent in January to the Ministry of Finance, the committee said it has observed that the number of listed companies worldwide has leveled off. It also noted that in large developed markets such as the U.S., U.K. and the euro area, the number of listed companies has long been in decline.

“Companies listing are also older and larger than before,” the committee’s letter said. “These trends may mean that the fund misses out on an increasing share of companies’ value creation by waiting until they are listed and eventually enter the fund’s benchmark index.”

A decision on whether to allow the investments could come before the Norwegian parliament next year, said Norway Minister of Finance Trygve Slagsvold Vedum, to Reuters. However, the risk exposure it potentially adds will be a major factor to consider.

“The advantage of listed shares is that they are more liquid,” Vedum told Reuters. “But when we open for this now, it’s just because we want to have a thorough evaluation of that.”