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Norway's $1 Trillion Fund Wants to Invest in Private Equity

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Norway’s $1 trillion wealth fund said allowing it to invest in private equity would boost returns and spread risk to a broader range of companies. 

In response to a request by the Norwegian Finance Ministry, the fund on Wednesday said given its size and long-term outlook it was “well-suited” to invest in unlisted equity.

A $1 Trillion Pie

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Source: Norges Bank Investment Management

A broader universe may “enable the fund to be invested in different types of companies to those that are available in the public equity market,” the fund said in a letter to the Finance Ministry. “Based on historical data, investing in unlisted equities can also be expected to generate a slightly higher return after costs than listed equity investments.” 

When it last year rebuffed a push to allow investments in infrastructure, the government opened up to considering whether to allow its wealth fund, the world’s biggest of its kind, to move into private equity. The fund was last year given the green-light to raise its stake in stocks to 70 percent of its portfolio in a bid to increase returns amid record low interest rates.  

The government typically announces changes in strategy in a white paper released each year in the spring, which is then debated in parliament. Officials at the ministry couldn’t immediately comment on the fund’s letter.

Besides generating higher returns and spreading risk, the fund also said that investing in private equity was becoming more important as the number of listed companies wane and fewer go public.

“In the U.S., the number of domestically listed companies has dropped almost 50 percent since the fund began investing in equity,” it said. “We find the same trend in the U.K. Elsewhere in the world, the number of listed companies increased until 2011 but has since fallen slowly.”

The fund argued in the letter that its experience from investing in real estate has given it the necessary know-how for private equity. It says the most relevant approach would be to invest in and alongside private equity funds.

Still, Yngve Slyngstad, the fund’s chief executive, said in an interview in August that as the fund grows in size, moving into new asset classes would have less impact.

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