Norway Fund Told to Forget Riskier Assets Until Oversight Fixed

By Mikael Holter and Saleha Mohsin

Photographer: Sven Hoppe/DPA Pool/AFP via Getty Images

An investigation surrounding Formula One Chief Executive Officer Bernie Ecclestone has... Read More

Norway’s $880 billion sovereign wealth fund can’t be allowed to chase riskier assets until lawmakers fix the oversight gaps that emerged in connection with its purchase of Formula One shares, according to the biggest party in the nation’s parliament.
“The Formula One case was quite an eye-opening experience for politicians who are dealing with issues regarding this fund,” Marianne Marthinsen, the Labor Party’s finance spokeswoman, said in an interview in Oslo on Friday. “It illustrates that we need a strong system of monitoring.”
The comments show the minority Conservative-led government will struggle to find backing in the legislature to avoid changes in how the
world’s biggest wealth fund is run. Finance Minister Siv Jensen said last week she saw no need for a change in the fund’s oversight and praised its management.
Yet calls for tougher standards have grown louder since the wealth fund bought its way into the closely held auto racing group in a move that lawmakers say may have overstepped its investment mandate. The fund can only buy unlisted equity if a company is planning an initial public offering. Formula One’s IPO was subsequently canceled.
An investigation surrounding Formula One Chief Executive Officer Bernie Ecclestone has also fueled the political debate surrounding the appropriateness of the investment. Ecclestone this month paid $100 million to settle a German corruption case.

Missing Returns

The controversy has hampered the wealth fund’s efforts to win lawmaker approval to expand its investment mandate beyond stocks, bonds and real estate. The fund says those asset classes aren’t enough to ensure it can meet its 4 percent return target over time. Over the past decade, its average real return has been just below 4 percent.
“Clearly” any talk of accommodating the fund’s wish to invest in other asset classes needs to be put on hold until its oversight is reviewed, Marthinsen said.
Labor has in the past said it’s open to letting the fund buy private equity and infrastructure investments. Real estate was added to its investment mandate in 2010, and the fund targets bringing such assets to 5 percent of its total portfolio.
“Real estate is demanding,” Marthinsen said. New asset classes “will require active management at a whole other level than we’re conducting today,” she said.

Oversight Split

Control of the wealth fund is split across parliament, the government and the central bank. The Finance Ministry provides a mandate for the fund, which is then managed by the central bank. The bank’s seven-member board, which is appointed by the government and includes the governor and deputy governor, helps oversee the fund. A 15-member supervisory council, elected by parliament, oversees the central bank.
Marthinsen said she’s concerned that the central bank’s involvement in oversight of the fund may weaken its ability to focus on monetary policy. Parliament should consider splitting or at least strengthening the bank’s seven-member executive board to address this risk, she said.
“The discussion of whether or not to have one common board is clearly one of the discussions we need to have in the years to come,” Marthinsen said. “We also have people who are quite concerned that the monetary policy is suffering because the management of the fund is taking more and more of the board’s time.”