At US$1 trillion, world's biggest wealth fund loses taste for new assets

  • Markets
  • Friday, 01 Sep 2017

Limited growth: Slyngstad says the opportunities for raising returns that Norway’s wealth fund once saw in infrastructure and private equity no longer exist. — Reuters

OSLO: The world’s biggest sovereign fund says expanding into new asset classes is now hardly worth the effort.

That means the opportunities for raising returns that Norway’s wealth fund once saw in infrastructure and private equity (and spent years trying to get political approval to buy) no longer exist, according to Yngve Slyngstad, the CEO of Norges Bank Investment Management.

Norwegian fund Norges also has a presence in Malaysia.

“Today, we’re close to US$1 trillion. Realistically speaking, whether we should invest in infrastructure, private equity or the likes isn’t a very important question for the fund,” Slyngstad said in an interview in Oslo.

“It would be such a small proportion, and the duration of implementation would be so long, that if it were to have an impact on returns, it would in reality be if the fund was going down in size.”

The comments offer a surprising twist to a process in which Norwegian governments have explored the merits of letting the wealth fund expand beyond stocks, bonds and real estate.

The investor had argued that adding more asset classes offered a path to higher returns after years of record-low interest rates. But now, its sheer size has undermined the logic of that proposition, according to Slyngstad.

Even after getting the greenlight to move into real estate in 2010, the fund has struggled to reach the 5% target it was given, despite adding staff to oversee the process.

“Even in real estate, which is a very big asset class, you need to spend many years building a significant proportion,” Slyngstad said. “It would be similar for infrastructure and private equity.”

Meanwhile, several think tanks and non-governmental groups have been urging the fund to start investing in infrastructure. The Norwegian government has so far said no, on the grounds that infrastructure investing risks pushing the fund into politically sensitive territory, with many projects being public works.

In a report presented to Norwegian lawmakers earlier this year, the Institute for Energy Economics and Financial analysis argued the fund should be freed to invest 5% of its capital in unlisted infrastructure, and especially renewable-energy assets. — Bloomberg

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