NORWAY – The Norwegian Pension Fund Global (NPFG) is "unacceptably exposed" to the structural and demographic problems facing developed nations and should consider greater emerging market exposure, according to a report on the NOK4.4trn (€558bn) oil fund's investment strategy.
The report, commissioned by Norwegian Church Aid (NCA) and written by think tank Re-Define, recommends the NPFG be split in two, with assets divided into equity and fixed income holdings and infrastructure and private equity investments.
The report further said that latter, more illiquid investments should "specifically" seek out opportunities in developing economies.
Commenting on the research, report author and the think tank's managing director Sony Kapoor said the fund was "unacceptably exposed to the structural and demographic problems afflicting over-indebted developed economies".
He added that it "squanders" the potential to be a long-term investor by holding mostly liquid assets.
"In order to better reflect the current and the future shape of the world economy, as well as to try and harness the fruit of faster expected growth in the non-OECD economies, the [NPFG] must significantly expand its geographic reach of countries it invests in," he said.
The NCA's general secretary Anne-Marie Helland was critical of the lack of investments in developing countries, saying the nations faced unemployment and were in need of further capital investment to develop.
"If we had invested considerably more in these countries, we would have contributed to more jobs, tax income and economic growth," Helland said.
"As it is, we contribute to a more unequal world, and that needs to stop."
Re-Define's report says a potential split of the fund – a topic of debate among the political parties as Norway heads to the polls in early September – will be "convenient" from a risk management and board oversight perspective, as well as benefit the development of in-house expertise.
"These aspects are very different between funds focusing on liquid index investing and those that take a more strategic active approach and make illiquid investments," the report notes.
"In some ways, keeping both under the same window would be mixing apples with oranges, though most endowments and other [sovereign wealth funds] such as [Singapore's] Temasek do exactly that."
It said the split would not be necessary if the Norwegian Finance Ministry instead altered the fund's mandate, but that implementing it would "better convey the differences to ordinary citizens".
IPE and Stirling Capital Partners are co-hosting a conference, Infrastructure for Pension Funds and Other Capital Owners, to take place on 2 October in London. For more information, click here.