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Norway’s oil fund to up emerging market exposure

Norway’s government wants its nearly $400 billion oil fund to invest more in emerging markets and hold bigger stakes in individual companies.

Finance Ministry department chief Martin Shancke said on Friday the government would issue new guidelines for the fund, raising the emerging market weighting in its benchmark portfolio to 10%, from a previous 5%. He said the guidelines designated 18 new emerging markets, the biggest of which were China, Russia and India.

The Government Pension Fund -- Global, commonly known as the “oil fund”, invests Norway’s oil and gas wealth in foreign stocks and bonds to save for future generations when the black gold runs out. It is Europe’s biggest equity investor. “Including more emerging markets in the benchmark is expected to improve risk diversification, and the benchmark portfolio will better reflect developments in global stock markets,” said Finance Minister Kristin Halvorsen. “The change to the benchmark will be phased in over time.” Halvorsen told a news conference that plans to increase the fund’s ownership limits in individual companies to 10% from 5% would not change its purely financial role. “We are clearly a financial investor and not a strategic investor,” she said. In a statement, the finance ministry said the higher cap “balanced the desire to underscore the Fund’s role as a financial and not a strategic investor against the potential costs of imposing too low a limit”.

The ministry also said it sought to include real estate as a separate asset class in the fund, in line with earlier plans. It said that up to 5% of the fund’s capital may be invested in real estate, “which would be offset by reduced allocation to fixed income investments”. The fund can now invest 60% in equities and 40% in fixed income. The ministry said it was planning to expand the Fund’s benchmark portfolio for equities by including “all the advanced and secondary emerging stock markets, as defined by FTSE”. “This implies the benchmark will be expanded to include also the stock markets in the following countries: Argentina, Chile, China, Colombia, the Czech Republic, Egypt, Hungary, India, Indonesia, Malaysia, Morocco, Pakistan, Peru, Poland, the Philippines, Russia, Thailand and Turkey,” it said. It said other advanced emerging countries like Brazil, Mexico, South Africa, South Korea and Taiwan were already in the equity benchmark. (Reuters)