(Sept 2): Norway’s US$2.3 trillion (RM9.3 trillion) sovereign wealth fund said more investments in unlisted assets could help diversification efforts in a time of higher political risk globally.

In a joint letter to Norway’s Finance Ministry assessing various risks facing the fund, Norges Bank Investment Management (NBIM) and the central bank suggested looking at “whether an increased allocation to unlisted assets over time could give the fund exposure to a broader set of sources of risk and reduce the significance of the concentration in the equity index”. 

It also said that geopolitical risk and concentration risk “may be interwoven”.

“Measures that could reduce one form of risk will in many cases entail new trade-offs between the desired risk reduction and increased complexity, higher transaction costs or unintended exposures,” it said in the letter dated Tuesday and published on Wednesday. 

That’s as much of the fund is, in line with its benchmark, invested in US technology stocks, which may be exposed to political risk, NBIM said. About 53% of its value is in various American assets.

“When a larger share of the fund’s return depends on political and regulatory factors, the boundary between financial and non-financial risk may appear less sharp than previously,” NBIM said. 

The fund follows a mandate from the Finance Ministry that currently excludes investments in private equity. Substantial changes to those investment rules require approval in Norway’s Parliament.

The fund has pitched private equity investments in the past, but has been rebuffed by policymakers due to transparency and cost concerns. 

Finance Minister Jens Stoltenberg said in a Bloomberg interview in June that the debate on private equity is something they “should look into at some stage”, and acknowledged that the fund can miss out on value creation by not investing in companies before they go public. That argument needs to be weighed against the need for “maximum transparency” for a public fund, he said. 

“As we always do in Norway, we move carefully and slowly,” Stoltenberg said then.

There’s been in increased political debate around Norway’s sovereign wealth fund the past year, including investments in Israel and its exclusion of Texas-based Caterpillar Inc. In January, a government-appointed expert panel warned of increased political risk in the US, and back in 2022, the Sverdrup Commission said that the fund might need improved capacity to handle non-financial risk.

“Developments in the geopolitical environment in recent years underline the relevance of this assessment,” the fund wrote on Tuesday. 

This may present another reason to consider “whether an increased allocation to unlisted assets over time could give the fund exposure to a broader set of sources of risk and reduce the significance of the concentration in the equity index for the fund’s overall risk profile”.

Uploaded by Tham Yek Lee