Norway’s Sovereign Wealth Fund Contemplates Private Equity Investments

Norway’s Sovereign Wealth Fund Contemplates Private Equity Investments

Exploring Opportunities in Private Equity

According to Nicolai Tangen, the head of Norway’s sovereign wealth fund, known as Oljefondet, the current economic climate presents an opportune moment to delve into the private equity market. This market has largely been inaccessible to the fund, but Tangen believes it could yield substantial returns. With interest rates on the rise, many entities are over-invested in private equity, thereby opening up the potential for advantageous deals.

A New Evaluation of Unlisted Shares

Norges Bank, the institution managing Oljefondet, is contemplating a fresh assessment of unlisted shares, a suggestion that has seen rejection on multiple occasions before. The Bank’s primary board is set to conclude on this matter in December.

Tangen proposes that if the fund had allocated 5% of its investments to private equity over the last ten years, it could have accrued an additional 150 billion NOK, equivalent to two defense budgets. Analysis conducted by Oljefondet reveals that, on average, funds focusing on company acquisitions provide 3-4 percentage points higher annual returns than listed companies.

Concerns over Transparency

Despite the potential benefits, some skepticism surrounds this move. Finance Professor Karin Thorburn at NHH has expressed criticism of investing in unlisted shares, pointing to the lack of transparency as a significant concern. In her view, one of the main factors contributing to the success of Norges Bank Investment Management, which oversees Oljefondet’s investment strategy, is its transparency.

In response, Tangen and his team argue that the private equity industry has evolved and now offers greater transparency, coupled with lower costs than before. They also believe that the size of the fund allows it to negotiate lower fees for investments in private equity funds. However, Tangen acknowledges that while most information about investments can be shared publicly, certain sensitive data, such as the valuation of individual companies in the portfolio, cannot be disclosed.

Anticipated Returns and Risks

In conclusion, Norway’s sovereign wealth fund is considering diversifying its investment portfolio to include private equity. The fund’s manager believes this strategy could prove highly lucrative, potentially earning the fund an additional 150 billion NOK over a decade. However, this move has been met with criticism due to concerns over transparency and risk. The final decision, to be made by the Norges Bank’s main board, is eagerly awaited.