Norway's sovereign wealth fund says size creates investment hurdles

Prime Minister Erna Solberg
Prime Minister Erna Solberg

Norway's $810 billion Government Pension Fund Global, Oslo, the world's largest sovereign wealth fund, is finding its record size is becoming a hurdle that's complicating its investment decisions.

“The challenge that we have, and we have already experienced, is the size,” Petter Johnsen, chief investment officer for equities at fund, said Friday after a speech in Gjoevik, north of Oslo. “The fund has grown very fast during a short time.”

Before taking office after September elections, Prime Minister Erna Solberg said she would consider splitting up Europe's largest equity investor to help make it more competitive. The fund has quadrupled in size since 2005 and will grow another 50% by 2020, according to government estimates.

“There's a strong need to renew ourselves relative to how we think about investments strategies, and we have to think a lot about the special characteristics of the fund: the size, its long-term outlook, how we can take advantage of that to a larger extent,” Ms. Solberg said.

The fund returned 5% in the third quarter, it said on Oct. 25. Its stock holdings advanced 7.6%, while bond investments climbed 0.3%. Real estate investments returned 4.1%.

Norway generates money for the fund from taxes on oil and gas, ownership of petroleum fields and dividends from its 67% stake in Statoil ASA, the country's largest energy company. The fund, which had an average holding of 1.2% of the world's publicly listed companies at the end of 2012, invests abroad to avoid stoking domestic inflation.

The fund, which gets its investment guidelines from the government, held 63.6% in stocks at the end of September, up from 63.4% at the end of the second quarter. Bond holdings slid to 35.5% from 35.7%, while real estate accounted for 0.9%. The fund is mandated to hold 60% in stocks, 35% in bonds and is building up to 5% in real estate, while allowing for fluctuations. It mostly follows global indexes and has some leeway to stray from those benchmarks.

Yngve Slyngstad, the fund's CEO, said last week the fund won't use new inflows to buy more stocks as he is predicting a “correction” in prices.

The fund is still “rebalancing” its investment focus as it shifts away from Europe, Mr. Johnsen said. The strategy will remain one of “counter-cyclical” purchases, he said.