The Wall Street Journal reports,''Norway's central bank governor said Thursday the nation's massive sovereign-wealth fund should be allowed to increase exposure to assets such as equities and infrastructure and trim back on bonds to find a better balance between improving returns and hedging against risk.
Øystein Olsen said that cutting the bond exposure of the fund, also known as the oil fund, to between 20% and 25% of its holdings from the current 35% could be appropriate''.
"We'll get markedly higher yields in the other asset classes—[such as] real assets, including equities," he said in an interview. "Yes, we'll see fluctuations in those assets, but as a long-term investor we can sit tight through those fluctuations.
"To get to such a share [of 20% to 25% bondholdings], we're talking many years. The advice will come significantly earlier, but to accomplish the target itself will take years," he said.
The $800 billion Norwegian sovereign-wealth fund, the world's largest, has been reducing its bondholdings for some time. The government recently mandated the fund, which is managed by the country's central bank, to invest as much as 5% of its capital in real estate, while reducing bondholdings from 40% to 35%. More than 60% of the fund is in equities.
In recent years, the fund's returns were above normal, in large part because of stimulative actions of major central banks, Mr. Olsen said, as unconventional monetary policies boosted equity prices. Government bond prices also rose and yields fell.
"Looking ahead, low long-term interest rates will feed through into lower returns. It is doubtful that equity prices will continue to advance at the same pace as seen in the past couple of years," he said later in his speech, according to a published draft.
Norway has made several strategic shifts to the oil fund recently, such as allowing it to go on a massive real-estate shopping spree in the U.S. and several European countries, and has also allowed it to reduce its European exposure by shifting more assets into the U.S. and emerging markets. Mr. Olsen didn't rule out further shifts in the distribution.
