Norway's Government Pension Fund Global, Oslo, will phase out its 50 billion Norwegian kroner ($5.5 billion) equity allocation to upstream energy companies from its investment portfolio, said Norges Bank Investment Management, which manages the sovereign wealth fund, on Wednesday.
The move follows a proposal June 29 from the Ministry of Finance to reduce the total risk related to oil prices for the fund.
Exploration and production companies accounted for 0.8% of the 9.6 trillion kronor fund's investment portfolio in August. The change also follows one of the sovereign wealth fund's equity benchmark indexes, the FTSE Global All Cap index, reclassifying upstream energy companies, a process expected to be completed by September 2020.
"It is reasonable to assume that the market will know which stocks the bank will be selling as part of this phase-out," said Oystein Olsen, governor of Norway's central bank, and Yngve Slyngstad, CEO of Norges Bank IM, in a letter sent Sept. 11 to the Ministry of Finance that was published Wednesday.
Due to risk of market impact, the bank will be allowed a longer phaseout period to divest cost-effectively.
"To give the bank sufficient time to make these changes cost-effectively, however, these companies should not be removed from the investment universe until somewhat later," Messrs. Olsen and Slyngstad added in the letter.
Norway's Parliament endorsed the changes.