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Norway – World 's largest state fund loses appetite for new asset classes News

Monday, September 4th, 2017 | Economy

According to CEO Yngve Slyngstad, the chances for increases in earnings that Norway's government once saw in infrastructure and private equity are no longer existent. The fund had spent many years trying to get the political okay for a possible new investment strategy.
"Whether we should invest in infrastructure, private equity or the like is not a very important issue for the fund," Slyngstad said in an interview with Bloomberg last week. "It would be so small a proportion and the implementation would be so lengthy that if it had an impact on the income, this would only happen if the size of the fund were to be taken away."
U-turn
The statements are a surprising turnaround in a process in which the Norwegian governments examined the benefits of allowing the fund to invest beyond equities, bonds and real estate.
Originally, the fund had argued after years of low interest rates that adding new asset classes was a way to higher yields. However, according to Slyngstad, the sheer size of the fund undermined the logic of this approach.
After the Fund was granted permission to invest in real estate in 2010, he was struggling to achieve the five-percent target set for him – although more employees were hired to accompany the process.
"Even in real estate, which is a very large asset class, you have to spend many years building a significant share," Slyngstad said. "In infrastructure and private equity it would be similar."
Investment in infrastructure
In the meantime, several think tanks and non-governmental organizations have asked the fund to invest in infrastructure. The Norwegian government has so far said no. In their opinion, such investments could lead the fund into politically sensitive territory, as many such projects are public projects.
In a report presented at the beginning of the year to Norwegian MPs, the Institute for Energy Economics and Financial Analysis argued that the fund should be allowed to invest five per cent of its investment in non-listed infrastructure and, above all, in renewable energies.
"Unlisted infrastructure offers attractive returns for the risk that is being addressed in a growing market," said Tom Sanzillo, the author of the report, last Thursday. "The increase in equity investments increases the risk with only modest results for the worldwide income."
Slyngstad said the fund would not reject infrastructure if the government changed its mind. But the asset class is unlikely to have a significant impact on earnings. The attractiveness of infrastructure has also been reduced by allowing the fund to increase its stocks from 60 percent to 70 percent of the investment volume.
"In order for future generations to retain their share of the oil age that we had, our investments in stock-exchange listed securities will be the main drivers of the income and hence the income of the fund," said Slyngstad. "This fund is increasingly driven by income on the stock market, not so much by what happens to interest rates, unless they affect the stock market."
(Bloomberg)

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