Norges Bank Investment Management Makes a Case for Money to Flow into Unlisted Equities
Posted on 01/06/2023
Norway’s massive sovereign wealth fund is getting prompted by staff to consider the investor to invest in unlisted equities in a bid to boost returns. In 2021, Norway’s Ministry of Finance appointed a commission to consider which national and international economic and political developments might be relevant to Norway Government Pension Fund Global (GPFG) in the coming years, and their implications for the governance and management of the fund. The commission was headed by Ulf Sverdrup. The Finance Ministry received the commission’s report, The fund in a changing world, on September 26, 2022.
Norges Bank Investment Management staff wrote a letter to the Ministry of Finance on January 6, 2023.
LINK: https://www.nbim.no/en/publications/submissions-to-ministry/2023/the-fund-in-a-changing-world–consultation-response/
Part of the letter reads, “The fund is not generally permitted to invest in unlisted equities. The commission writes that if a significant share of global value creation moves out of the listed market, consideration will need to be given to the implications for the fund’s investment strategy.
Norges Bank closely monitors developments in both the listed and the unlisted equity market. We are seeing more and more indications that a larger share of value creation is taking place in the unlisted market. For example, the market for unlisted equities has grown in size in relation to the listed equity market. In 2017, an expert group appointed by the Ministry of Finance estimated that the unlisted market was 5 percent of the size of the listed market. The Bank’s updated estimates suggest that this figure is now around 8 percent[12].
We have also seen that the number of listed companies worldwide has levelled off.[13] In large developed markets such as the US, the UK and the euro area, the number of listed companies has long been in decline. Companies listing are also older and larger than before. These trends may mean that the fund misses out on an increasing share of companies’ value creation by waiting until they are listed and eventually enter the fund’s benchmark index. Norges Bank believes it should be investigated whether the fund’s investment strategy should reflect these trends, and whether unlisted equities in general should be included in the fund’s investment universe.
A decision to permit the fund to invest in unlisted equities on a general basis would need to be preceded by a thorough assessment of the pros and cons, and of the appropriate orientation of such investments given the fund’s characteristics. The introduction of unlisted equities would be a long-term decision requiring broad support.”
