Norway Backs Biggest Wealth Fund in Seeking Highest Returns

Jan 28, 2014 8:50 am ET

(Updates with comments from fund CEO in seventh paragraph.)

Jan. 28 (Bloomberg) -- Norway Finance Minister Siv Jensen said the nation’s $820 billion wealth fund should pursue the highest returns amid opposition demands that the investor place more focus on ethics and the environment.

“I believe strongly that you shouldn’t mess around with people’s pensions,” Jensen said in an interview in Oslo yesterday. “We have an overall responsibility to have a long- term, good financial-investment profile that provides the highest possible returns at the lowest possible risk.”

Norway’s parliament held a hearing today on whether the fund should exclude coal companies from its portfolio after a proposal by Labor, the biggest opposition party. The fund, built from Norway’s oil and gas revenue, already takes into account ethical rules encompassing human rights, some weapons production, the environment and tobacco when deciding on its investments.

Jensen, who took office in October, is preparing a white paper to be released in April that will provide new strategy recommendations.

“The fund’s main goal is to manage people’s pension money in the best possible way, and ensure that the capital grows,” Jensen said. “Many would want the fund to have other goals. Some believe that should be environmental goals, some foreign- policy goals, foreign-aid goals. That’s not necessarily always compatible with the main ambition, namely to be a long-term financial investor.”

Cutting Holdings

While the opposition’s proposal to ban investments in coal companies could gather a majority in parliament, it’s not yet clear if it would include all mining companies involved in coal production or even utilities using coal to generate power.

The fund halved investments in coal producers over the past two years to about 2.5 billion kroner ($406 million) as of Dec. 31, Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, which manages the fund, said today at the hearing.

“This is a small, economically insignificant sector for the fund,” he said. “In the course of a day, the fund shifts about 10 times as much in value as those investments put together.”

The fund’s investments in mining companies, including companies such as BHP Billiton Ltd., for which coal represents only part of the output, were 36 billion kroner at the end of last year, according to NBIM presentation material.

Buying Infrastructure

The fund has also sought permission to expand into more asset classes, such as infrastructure and private equity, as it struggles to meet return targets. Prime Minister Erna Solberg said this month that investing in pipelines, roads and other infrastructure would be a good fit for the wealth fund as the government considers ways to help it boost returns.

The fund has missed a 4 percent return target over the past decade, in part as financial market turmoil that started in the U.S. and spread to Europe led to record losses.

So far, the government has proposed boosting the fund’s focus on emerging markets and clean energy. It’s currently mandated to hold 60 percent in stocks, 35 percent in bonds and 5 percent in real estate.

The fund, which got its first capital infusion in 1996, has been taking on more risk as it expands, adding stocks in 1998, emerging markets in 2000 and real estate in 2011 to help returns and safeguard the wealth of western Europe’s largest oil exporter.

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--Editors: Jonas Bergman, Tasneem Brogger