Norway oil fund gets PE-friendly advisor

Svein Gjedrem was named administrative leader of the country’s finance ministry, which includes an advisory role for the $570bn fund. Last year, Gjedrem sent a letter to the ministry recommending the fund expand into private equity and infrastructure.

A shift in leadership at Norway’s $570 billion state oil fund could open the way for the strategically conservative fund to invest in private equity and infrastructure.

Svein Gjedrem, former governor of Norway’s central bank, took over as administrative leader of the Ministry of Finance on 11 June, making him chief advisor on investment rules for the oil fund, according to a spokesperson at the Ministry of Finance and a recent article in Bloomberg.

Gjedrem has publicly supported expanding the fund’s investment universe to alternatives. Currently, the fund’s strategic asset allocation is 60 percent equities, 35 percent fixed income and 5 percent real estate. Gjedrem replaces Tore Eriksen, who has supported keeping the fund’s conservative investment approach, according to Bloomberg.

The fund is well-suited to bearing the risk and harvesting potential gains from investments in less liquid assets, as the fund does not have short-term liquidity needs.

Svein Gjedrem and Yngve Slyngstad

Gjedrem will have influence over the strategic direction of the fund, but ultimately decisions about the way the fund invests are made by the Finance Minister Sigbjorn Johnsen, the Bloomberg report said.

Last year, Gjedrem, then the governor of Norges Bank, co-authored a letter with Yngve Slyngstad, chief executive of Norges Bank Investment Management, which manages the oil fund’s assets, to the Ministry of Finance recommending the fund expand into alternative investments.

“The fund is well-suited to bearing the risk and harvesting potential gains from investments in less liquid assets, as the fund does not have short-term liquidity needs,” they wrote in the letter. “Nor is the fund subject to rules that could require adjustments to the portfolio at inopportune times.”

Various government reports have recommended the fund break out of its conservative asset allocation and build exposure to alternatives.

Norges Bank published a report last year recommending the fund expand into private equity and infrastructure, though with a strong emphasis on environmental, social and governance characteristics. Another government commissioned report – Investment Strategy and the Government Pension Fund Global – published at the end of last year also recommended the fund gain exposure to alternatives.

“The long horizon makes the GPFG more tolerant of short-term losses than most investors. The simplest way to exploit the above-average risk tolerance would be further raising the equity allocation,” the report said.

However, the finance ministry in April blocked the fund from expanding into private equity and chose to create a 5 percent allocation to real estate. In part, the Ministry’s decision against private equity had to do with private equity management fees.