At $30 Billion, Norway’s Other Wealth Fund Is Simply Too Big

(Bloomberg) -- Norway’s domestic wealth fund has become so big that it’s looking for ways to get rid of excess cash by proposing some key changes to its investment model.

The Government Pension Fund Norway is the domestic counterpart of the country’s better-known sovereign wealth fund, the world’s largest of its kind with $1.1 trillion in assets. Unlike its bigger sibling, the investor is confined mostly to assets in its home market. After swelling to 261 billion kroner ($30 billion) this year, the fund is now dangerously close to its ownership limits.

That’s why the domestic fund is asking to change its mandate, freeing it to hold less than 85% in Norwegian stocks and bonds, and more than 15% in assets in Sweden, Denmark and Finland, according to a letter it sent to the finance ministry this month. Local news service E24.no was first to report on the letter.

The government will now go through the fund’s proposals and consider changes to its mandate, the ministry said in an emailed comment to Bloomberg. It didn’t provide a timeline.

As the biggest oil and gas exporter in western Europe, Norway has become one of the world’s richest countries. It administers its vast wealth by setting aside money to support future generations and by steering investments to avoid overheating its economy here and now. That’s why the country’s $1.1 trillion sovereign wealth fund isn’t allowed to invest in Norway.

‘Fully Invested’

Contrary to its global counterpart, the domestic fund gets no new capital injections. Nor is it used for fiscal purposes, meaning it re-invests all the dividend and interest income it gets in new assets.

Read: Norway Domestic Wealth Fund Targets Bank Debt Liquidity Premiums

The fund has an ownership limit of 15% in single companies in Norway, but its share of the Oslo stock exchange’s main index has been over 10% for several years, limiting its room for active management, it said in the letter. (It targets 60% in equities and 40% in bonds.) In the event of a financial crisis-like stock crash, re-balancing the portfolio would lead the fund to breach its mandate, it said.

“The fund is now near fully invested in the Norwegian stock market,” it said in the letter. “In order to be able to act counter-cyclically in turbulent times, it’s advisable that Folketrygdfondet [as it’s called in Norway] retains sufficient room to act in its management also in the future.”

The fund also proposed being freed to invest in unlisted entities, even if they’re not planning public listings (which is the current condition for private equity purchases).

Other alternatives include annual or one-time withdrawals, the fund said, without directly advising that such models be adopted.

To contact the reporter on this story: Mikael Holter in Oslo at mholter2@bloomberg.net

To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net

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