Norges Bank Investment Management, the manager of Government Pension Fund Global, has wanted to diversity into illiquid assets, such as private equity and infrastructure. But recently, the Norwegian Finance Ministry has told the Government Pension Fund Global, not to diversity their investments into private equity and infrastructure investments. The Finance Ministry instead suggested from them to shift their focus away from European investment. The Norwegian Finance Ministry, mentions that these types of investment would exploit the fund’s distinctive characteristics as a large, long-term investor without continuing liquidity needs.
Also mentioning that the fund should gain experience from its current real estate investment, prior to jumping into private equity or infrastructure.
Sigbjørn Johnsen, Norwegian finance minister, mentioned in the press released, “The fund is allowed to invest 60 per cent in equities and 40 per cent in bonds, of which 5 per cent can go into real estate.”
He continues by adding, “The strategy remains to seek to achieve maximum international purchasing power within moderate risk limits.”
The ministry of finance is arguing that private equity investments comes accompanied by high management fees, which ultimately makes the achievement of a satisfactory return from the asset class too uncertain. In the case of infrastructure, it is highly leveraged and there is limited on historical returns.
The other recommendation given to the Government Pension Fund Global, was that they fund should have a geographical mix within the investment portfolio. The European securities make up more than half of the fund’s equity holdings and nearly two-thirds of its bonds.
