World’s largest sovereign wealth fund could invest US$70 billion in private equity

NORWAY’S US$1.5 trillion sovereign wealth fund, the world’s largest, should include private equity investments in its portfolio, allocating up to US$70 billion, the country’s central bank recommended on Tuesday (Nov 28).

The Norwegian finance ministry in March asked the executive board of Norges Bank, which manages the fund, to assess whether unlisted shares should be added as an asset class.

Some 3 per cent to 5 per cent of the fund’s assets could gradually be moved to private equity funds, equivalent to between US$40 billion and US$70 billion, the central bank said.

A final decision will be made next year by parliament. It has previously rejected requests by the fund to move assets into private equity, arguing it could be too costly and would hamper the ability to judge its performance on an ongoing basis.

The fund, which invests Norway’s surplus oil and gas revenue abroad, is the world’s biggest single stock market investor, owning some 1.5 per cent of all globally listed shares, and has stakes in more than 9,200 companies.

“Norges Bank considers it a natural evolution of the investment strategy for unlisted equity investments to be permitted on a general basis,” the central bank wrote in a letter to the finance ministry.

“A broader investment universe will provide more investment opportunities and help the fund benefit from a larger share of global value creation than today,” it added.

At the end of September, 70.6 per cent of the fund’s assets were invested in listed stocks, 27.1 per cent in fixed income, 2.2 per cent in unlisted real estate and 0.1 per cent in unlisted renewable energy infrastructure.

By way of comparison, the ten largest investors in private equity had an average of US$80 billion invested at the end of 2022, Norges Bank said.

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The fund in 2018 sought permission to acquire unlisted shares via private equity funds or by investing alongside such funds, but the then-government rejected the proposal, arguing it would impede transparency and drive up asset management costs.

But in 2022, a government-appointed commission again raised the topic of private equity, arguing that this could allow the fund to invest in promising companies at an earlier stage and thus potentially earn higher returns. REUTERS