With New Leadership, Norway SWF May Broaden Investments

Following new investment leadership at Norway's sovereign wealth fund, the oil fund may have more flexibility to invest in new asset classes such as roads, gas pipelines, and unlisted shares.

(June 16, 2011) -- Following a change in leadership at Norway's $570 billion oil fund, the sovereign wealth fund may increasingly target a broader spectrum of investments, such as private equity, Bloomberg has reported.

This week, former central bank Governor Svein Gjedrem started his role at the fund as secretary general at the Finance Ministry and chief adviser on investment rules for the oil fund, succeeding Tore Eriksen. “Gjedrem is a person of very powerful ability of persuasion,” Knut Anton Mork, chief economist at Svenska Handelsbanken AB in Oslo, told the news service. “The ministry will do what he wants. I see no reason why Gjedrem should have changed his view on this matter and against that background I expect the ministry to change course and allow for these new asset classes.”

While Eriksen has historically expressed his support of the fund adopting a "conservative" approach following its record $116 billion loss following the global financial crisis, Gjedrem voiced his aims last year to invest more heavily in infrastructure and private equity investments.

In contrast, other wealth funds, such as Singapore’s Temasek Holdings Pte and Abu Dhabi, are already heavily investing in infrastructure and private equity in an effort to achieve superior returns.

The support for increased investment in infrastructure by the world's sovereign wealth funds is also reflected in a March report by the Brookings Institution, which asserted that the US should offer a greater number of incentives for sovereign wealth funds to invest in American infrastructure. The report stressed that US policymakers should become more accepting of foreign investments and should offer tax breaks and loan guarantees. The incentives, the Brookings Institution says, would encourage the world's sovereign wealth funds, whose assets have swelled 11% in the past 12 months to about $4 trillion, to invest in the US.

"With America’s 2009-10 federal budget deficit projected to total $1.5 trillion and its public debt expected to rise to about $13.5 trillion this year, the need for foreign investment-properly focused and thoughtfully structured-is high," the report stated, identifying potential approaches to address long-term financial needs in partnership with foreign capital.