OSLO: Norway’s $US880bn ($A1.15trn) oil fund is being urged to invest billions of dollars more in equities and take on more risk in what would be a big shift in its asset allocation away from bonds.
The world’s largest sovereign wealth fund should invest 70 per cent of its assets in shares, up from today’s 60 per cent, at the expense of bonds, according to a government-commissioned report. The move is highly significant for global markets as the oil fund owns on average 1.3 per cent of every single listed company in the world and 2.5 per cent in Europe.
The report is the latest salvo in a debate on how much risk the long-term investor should take, and comes amid growing warnings of dwindling returns for government bonds in particular. The allocation to equities was increased from 40 per cent to 60 per cent in 2007.
“With a higher share of equities, the expected return will increase as will the income to the government budget. Yes, it comes with higher risk but we think we are well equipped to handle this risk,” Hilde Bjornland, an economics professor behind the recommendation, told the Financial Times.
Saker Nusseibeh, chief executive of Hermes Investment Management, a UK asset manager, said the move was part of a broader trend of investors looking to increase their equity exposure. “This is about the realisation that you cannot make returns of the same amount that you used to make in the past,” he said. “If you are a sovereign wealth fund you will question why you would have so much in fixed income at all.”
A survey of fund managers from Bank of America Merrill Lynch shows a rise in cash holdings, which in part reflects “scepticism or outright fear of bond markets”, according to Jared Woodard, an investment strategist at the bank.
Norway’s centre-right government will evaluate the recommendations before setting out its own position next year. Senior insiders said they expected the allocation change to go through as the report was co-authored by two former finance ministers.
