The Norwegian parliament is poised to debate the merits and drawbacks of incorporating private equity investments into the country’s mammoth 1,490 billion euro sovereign wealth fund, the largest globally. The government is hesitant about unlisted funds, despite previous recommendations from Norges Bank, the country’s central bank which manages the national oil fund.
Finance Minister Trygve Slagsvold Vedum, at a recent press conference, underscored the decision to maintain the status quo and oppose unlisted investments. He cited “higher fees, lower transparency of information, and the need for broad political consensus,” according to Reuters. Amid global uncertainties, stability remains a central theme, with Vedum’s administration prioritising “calm around important institutions.”
A spokesperson for the fund, managed by Norges Bank Investment Management, said nevertheless the discussion on investing in unlisted assets will continue.
“We think it is positive that the ministry of finance wants to further evaluate the option of including unlisted shares in the fund’s mandate,” Line Aaltvedt, head of communications, told Investment Officer. “We look forward to meeting the Finance Committee in parliament to answer questions on the topic.”
Global discussion
The discussion in Norway will also be closely monitored elsewhere, notably in the Netherlands where several major pension funds in recent years have increased their holdings in private markets such as real estate, mortgages and private equity, and in Luxembourg, with some 14,000 private funds considered a lead European private markets domicile, also for Nordic investors.
Dutch pension funds aim to alleviate concerns about the performance fees they pay to private equity funds by increasing accountability and providing more explanations about the dilemmas and considerations surrounding these investments.
Meanwhile in the US, the National Bureau for Economic Research (NBER) recently concluded that the returns generated by private credit funds appear to primarily benefit fund managers, not investors. After deducting costs and risks, there is no additional return left, NBER said.
Approximately 75 billion euro
The Norwegian government’s stance against unlisted investments comes in the wake of recommendations by Norges Bank last year to allocate up to 5% of the fund’s assets—approximately 75 billion euro—to private equity. However, a new white paper by the Ministry of Finance reflects substantial reservations. It cites the “very high fees” of private equity funds which, despite potentially high returns, could undermine the fund’s legitimacy due to the cost structure incompatible with current management mandates.
Limit on fees
“Although there may be a high excess return net of costs, high fees may in themselves have a negative impact on the legitimacy of the fund,” said the finance ministry’s white paper. “The current management mandate requires Norges Bank’s agreements with external managers to include a limit on fees, which the Bank considers unlikely that private equity funds would accept. This requirement would therefore have to be adjusted if the fund were to invest in private equity funds.”
In December 2023, Norges Bank reiterated its support for including unlisted equities under its active management umbrella, although these would not be part of the fund’s benchmark index.
Expert council planned
Adding to the complexity, the ministry plans to establish an independent expert council to guide future decisions on unlisted equities and other investment considerations. “We will continue to consider it,” said Vedum, highlighting the ongoing dialogue and the potential for future policy shifts.
Historically, the Norwegian parliament has resisted moving sovereign fund assets into private equity, citing high costs and challenges in ongoing performance evaluation. The upcoming debate marks another chapter in the nation’s cautious approach to managing one of the world’s most significant financial reserves. As Norway grapples with external economic pressures, the focus remains on maintaining a prudent and stable investment environment for its sovereign wealth fund.
Further reading on Investment Officer Luxembourg:
- Alpha private credit markets skimmed off by costs and risks
- Blackstone’s Solotar foresees structural shift to private credit
- 45% of family offices want more private credit in portfolios
- Carlyle bites back in debate over risks in private credit
- ‘Private credit will eclipse equity in the next decade’