Norway, which has funneled its oil riches into the world’s largest sovereign wealth fund, lacks the financial expertise to oversee the $850 billion investor, think tank Re-Define said in a report.
Norway’s parliament should create an independent committee of financial experts to hold the fund and the Finance Ministry, which oversees it, accountable, Sony Kapoor, director of Re-Define, said in an e-mail.
“Few countries have as big a gap between exposure to the international financial system and expertise on it as Norway,” said Kapoor, a former investment banker who has advised several governments, including Norway’s, and groups such as the World Bank.
Norway is at risk because bankers and employees at the fund and the Finance Ministry, and even central bank board members, are afraid to criticize the fund and rock the local consensus, said Kapoor, citing private conversations he’s had with individuals associated with the fund’s operations.
“Much of this is common to other small countries, but nowhere else are the stakes as high as in Norway,” he said.
A debate on stricter oversight of the fund erupted this month after local media reports called into question the fund’s 2012 investment in Formula One.
Politicians are now questioning whether the fund followed its mandate when it invested in the auto racing group ahead of a planned public offering and amid corruption allegations against Bernie Ecclestone, Formula One’s chief executive officer. The fund can only buy private equity if a company has a stated plan to sell shares to the public, according to a mandate from the Finance Ministry. Formula One’s IPO was subsequently canceled.
Yngve Slyngstad, the fund’s CEO, said in an interview with newspaper Dagens Naeringsliv published this week that he now finds the Formula One investment “very unfortunate” and that the fund has “zero tolerance” for corruption.
The controversy marks a setback in the fund’s efforts to gain permission to invest in private equity as it struggles to reach a 4 percent return target. The Conservative-led government, which will present a white paper on the fund on April 4, had signaled willingness to expand the investment mandate to include more than the stocks, bonds and real estate it is now allowed to buy.
Finance Minister Siv Jensen said in a letter to parliament released on March 12 that the government would return to the issue of private equity at a “later date” after the white paper is released.
Kapoor said it would be wrong to let the recent controversy stifle the fund’s expansion into new assets. He has previously recommended more investments in private equity and infrastructure in emerging markets.
“It will lead to even more low returns and the fund would fail to exploit the biggest strength it has, that it does not need liquidity,” he said. “What is needed instead is that the governance and oversight of the Fund match the size and scope of its investments.”
The fund has missed its 4 percent return target over the past 10 years, reaching an annual net real return of 3.98 percent in the period.
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