Time for Norway’s SWF to Divide?

(September 11, 2013) — Norway’s incoming centre-right government has unveiled plans to overhaul—and even consider breaking up—the country’s $750-billion oil fund.

The Conservatives and the populist Progress Party, who are likely to share power after Monday’s poll, are considering splitting it into two or more, possibly competing, funds, according to a report on Reuters.

They may also allow investment into hitherto un-tapped asset classes in an effort to create a more diversified, and in theory profitable, portfolio.

“The current organisation has served the fund well through the start-up period, but it is now time to review whether the fund should stay within the current framework,” Jan Tore Sanner, the Conservatives’ finance spokesman told Reuters.

Currently, the fund is limited to buying foreign stocks, bonds, and property. It is not allowed to invest at home as previous governments felt the public sector was already large, and any further spending would risk pushing the private sector out—reducing competitiveness and prompting inflation in the process.

The two funds that would be created, if the Conservatives’ get their way, would compete with each other and allow investments in private equity and infrastructure abroad for the first time.

Even more radical changes are being suggested by the anti-taxation and anti-immigration party, the Progress Party.

The political group will hold the balance of power, having entered the government for the first time this year.

It wants to break off three smaller funds from the main one to focus on renewable energy, foreign aid, and to let Norwegian finance groups manage some of the cash.

“For a rough estimate, if the fund is worth 4,500 billion crowns ($755 billion), the main fund would be worth 4,000 billion crowns and the remaining 500 billion crowns would be divided between three smaller funds,” Ketil Solvik-Olsen, the Progress Party’s finance spokesman, told Reuters.

The Norwegian sovereign wealth fund has come under fire in recent months for perceived poor returns.

In the second quarter, the fund returned just 0.1% on its investments, as fixed income investments lost 1.4% and equities returned just 0.9%.

Related Content: Should the Largest SWFs Be Split Up? and SWFs are Doing it for Themselves