Government Pension Fund Global, Oslo — the world's largest sovereign wealth fund — should allocate more of its equity portfolio to North America at the expense of Europe.
Norway's Ministry of Finance made the recommendation to the country's parliament in its annual white paper reporting on the management of the 10.49 trillion Norwegian kroner ($1.16 trillion) GPFG and the 237.3 billion kroner Government Pension Fund Norway, the country's Oslo-based sovereign wealth funds.
GPFG's benchmark investment strategy has a 70% allocation to equities.
The ministry proposed changes to the geographical exposures for the GPFG following an assessment and recommendations from other entities including Norges Bank.
By geography, exposure to U.S. and Canada equities should be increased to 48% from 41.6%, largely at the expense of European investments, which would reduce to 26.5% from 33% as of Dec. 31. The benchmark exposure to other developed markets, including APAC and Middle East countries, would remain at 14.3% and the emerging markets exposure would increase slightly, to 11.2% from 11.1% according to the paper.
"The changes we are proposing will ensure the investments better represent the distribution of value creation in listed companies globally," said Jan Tore Sanner, minister of finance, in a news release.
The ministry is also reviewing the makeup of the emerging market sub-benchmark, with new markets under consideration for inclusion. It will present this assessment in its 2021 white paper, due next spring.
For the GPFN, the ministry is considering a new framework for withdrawals of assets from the fund, which is run by in-house manager Folketrygdfondet and invests in Norway and other Nordic countries.
The GPFN's ownership in companies listed on the Oslo Stock Exchange has "reached a level where there is considerable risk of breaching" a 15% ownership limit for individual companies, the paper said.
The fund's benchmark asset allocation is 60% equities and 40% fixed income, while about 85% of overall investments are in Norway. The remaining 15% of assets is invested in Denmark, Finland and Sweden.
Manager Folketrygdfondet has recommended a reduction in the allocation to Norway, increasing the allocation to the other Nordic countries, in order to solve the ownership limit issue. Other options include "expanding the scope for investment in unlisted companies pursuing listing, and withdrawals."
The ministry's white paper said it proposes that the investment allocation remains unchanged at 15% to Denmark, Finland and Sweden. "The challenges of high ownership shares in companies listed on (the) Oslo Stock Exchange should be resolved, fully or in part, through withdrawals from the GPFN," the white paper said.
The ministry will continue to review the potential for withdrawals from the fund to solve the problem as well as considering whether investing in unlisted companies that are looking to go public "may to some degree be expanded," Mr. Tanner said.