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Norway’s $815 billion oil fund faces key decisions

Norway's $815bn oil fund faces a crucial year with several big decisions expected on its strategy as a debate rages over whether the world's largest sovereign wealth fund has become too big.

The oil fund will provide its new strategy for the next three years in the coming weeks. Then the new centre-right government in Norway will have its first chance to put its own stamp on the fund's operation while the finance ministry will decide whether the fund should manage its money in a more active manner.

Kristian Helgesen | Bloomberg via Getty Images

"This year will be one of the most important for the fund. There is always some excitement around a new government and there are some large strategic issues that need answers," said one person with detailed knowledge of the fund.

Norway's oil fund has quintupled in size in the past eight years – the time of the last change of government – raising questions about whether it is becoming too unwieldy to manage.

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Siv Jensen, Norway's new finance minister, has backed away from suggestions made on the campaign trail that the government could consider splitting the fund up.

But the government still has to decide how to implement its pledge in its coalition agreement to establish separate investments in "sustainable companies, and poor countries and emerging markets". It also said in the agreement in October that it would consider setting up an individual mandate for renewable energy.

Currently, the fund invests about 60 per cent in equities and 40 percent in bonds with room for up to 5 per cent in property. The fund itself has said it is keen to invest in infrastructure and private equity, but could update that in its 2014-16 strategy due shortly.

Norway's finance ministry is also undertaking its regular review of the fund's active management, which takes place every four years and this time will be conducted by US professors Andrew Ang and Michael Brandt, and the former head of a Canadian pension fund, David Denison.

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This year will be one of the most important for the fund. There is always some excitement around a new government and there are some large strategic issues that need answers

Officials stress that all courses of action are open, from allowing the fund to take more active investment decisions that stray more from its benchmarks, to leaving things the same or even making it more of a passive investor.

But Pål Haugerud, head of the ministry's asset management division, told the FT 18 months ago that it was natural to consider whether the fund's size allowed it to take more risk than other investors in an attempt to boost returns.

More from the FT:
Plan to shake up Norway's oil fund
Norway oil fund ramps up property assets
Norway's new government targets infrastructure

The government also needs to decide whether to follow the advice of its strategy council and implement the biggest organisational changes in a decade as part of an attempt to keep the fund at the forefront of ethical investing.

The fund's growing size makes it more of a target for Norwegian politicians despite the informal rule that decisions on its future should betaken by overwhelming consensus.

The opposition Labour party, in power until October, recently proposed that it should no longer invest in coal companies. Some investors, such asinsurer Storebrand, and pressure groups have gone further and suggested itshould exit most or all fossil fuel investments.

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