World’s biggest wealth fund gets political pushback in asset bid

Bloomberg

Norway’s biggest political party says the country’s giant wealth fund needs to rethink its proposed entry into the $20 trillion infrastructure market.
“With what we’re seeing now with economic developments globally, and the short-term cost of that for Norway, it’s time to put the brakes on,” said Torstein Tvedt Solberg, a Labor Party politician who sits on the parliamentary finance committee that helps oversee the Norwegian sovereign wealth fund. “We shouldn’t undergo structural shifts too fast” as there are “too many uncertainties with the oversight and structure of the fund.”
The $810 billion investor has long lobbied for permission from the Norwegian government to add infrastructure to its mandate. But increasingly uncertain global markets are making lawmakers nervous. Without support from the Labor Party, Norway’s minority government will find it hard to change the fund’s mandate in a parliamentary vote that could come as soon as this year.
The wealth fund, built from Norway’s petroleum riches, has seen a precipitous drop in cash injections from the government after the price of oil collapsed. The development is also threatening the domestic economy, which relies on the petroleum sector for about a quarter of its output. All that adds up to an historic step being taken by the government this year: withdrawals from the fund to plug widening budget shortfalls.
The fund in December proposed to the government that it be allowed to invest as much as 5 percent in infrastructure as it seeks to boost returns. It has so far been allowed to invest in stocks, bonds and some real estate.
The government will make a decision this spring. Norway traditionally seeks the broadest support across its seven political parties for major shifts in the fund.
Since entering the property market in 2011, the fund’s strategy implementation costs have risen, which is cause for concern if the investor seeks to expand its exposure to real assets, Tvedt Solberg said. “We need more answers on why costs have gone up since going into real estate.”
The government this year added a second deputy governor to the central bank, which oversees the wealth fund, as it looks to tighten oversight of the fast-growing fund. While that’s a step in the right direction, “we want deeper structural changes,” Tvedt Solberg said.
That could mean creating a separate board for the fund, which is now overseen by the same board that sets monetary policy, or even moving the fund out of the central bank, he said. “We welcome all these discussions.”
But Labor won’t back any government proposals to shift the fund’s mandate until after a review of a nearly 30-year-old central bank law is reviewed, which is due in 2017. “More needs to be in place before we could agree on anything,” Tvedt
Solberg said.