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Norway's sovereign wealth fund seeks flexibility to invest in unlisted stocks

The Norges Bank is seeking greater autonomy for the Norwegian sovereign wealth fund to invest in unlisted companies, and suggested that up to 1% of the fund's equity portfolio be used for such investments.

In a letter to the Norwegian Ministry of Finance, the central bank proposed changes to regulation regarding the fund's investments in unlisted companies.

The central bank said that the requirement of "an intention" to go public from an unlisted company's board before the fund invests in such companies should be changed as, historically, the board's resolution on such matters is passed relatively late in the process, by which time the fund has already passed up on the opportunity to make relevant investments.

To avoid the lag, the Norges Bank proposed that the fund should be allowed to invest in large companies that are not listed yet as these companies will often have other institutional shareholders, allowing for better liquidity. The option will also help the fund to build its desired exposure over a longer period of time. In such cases, the central bank will need to prioritize its due diligence regarding the probability of these companies going public.

The central bank noted that the fund's investment in unlisted companies "should be regulated more closely in line with other investments that are not part of the benchmark index than is currently the case, through a combination of restrictions imposed by the ministry and the executive board, respectively."

If the changes are applied, the central bank proposed a cap of 1% of the fund's equity portfolio for investment in unlisted companies to "address the intentions behind this type of investment." The fund's executive board should also issue additional risk limits such as the minimum size of the unlisted companies and the maximum stake, the central bank said.