The two sovereign wealth funds that make up Norway's Government Pension Fund, Oslo, will not be permitted to invest in unlisted infrastructure, while the smaller of the two funds will also not be allowed to invest in unlisted real estate, the Norwegian government said Tuesday.
The fund comprises the 7.5 trillion Norwegian kroner ($899 billion) Government Pension Fund Global; and the 198 billion Norwegian kroner Government Pension Fund Norway.
“Following an overall assessment, the Ministry of Finance is not prepared to permit the GPFG to invest in unlisted infrastructure at this stage,” said a ministry white paper on the management of the Government Pension Fund in 2015.
Regarding the Government Pension Fund Global, the white paper said: “A lack of data on unlisted infrastructure makes it difficult to assess whether such investments improve risk diversification or raise expected returns for the average investor. A further question is whether the fund has advantages compared to other investors for such investments.” The white paper highlighted that the investment opportunity in unlisted infrastructure is small, accounting for 0.5% of the global investible capital market.
The ministry also plans to increase the global fund's investment limit in unlisted real estate to 7% of the total fund, up from 5%. The fund's benchmark index will only include listed equities and bonds, with real estate investments included in that framework for deviations for the benchmark index. “The investments will be evaluated against a broadly composed index which can, in principle, be followed closely at low cost,” the white paper said.
Further, the paper said, “the Ministry of Finance is not prepared to permit the (Government Pension Fund Norway) to invest in unlisted real estate and infrastructure.” The fund's money manager, Folketrygdfondet, had recommended allowing the fund to invest in unlisted infrastructure and real estate, for diversification purposes and to boost returns. However, the ministry said the Norwegian infrastructure investment market is small and undeveloped, and that “any investments in infrastructure by the GPFN will most likely result from the sale of such assets by the central or local government. Such a change of ownership will leave the state's overall risk level unchanged, and usually generate significant transaction costs.”