* Conservatives-led coalition wins election in Norway
* Norway has the world's biggest SWF with $750 billion
* Conservatives, Progress Party open to infrastructure
* Conservatives open to idea of splitting fund in 2
* Progress Party wants to break off 3 smaller funds, spend
By Gwladys Fouche
OSLO, Sept 10 Norway's incoming centre-right
government plans to revamp and possibly break up the country's
$750-billion oil fund, changing how one of the world's biggest
investors spends its money.
The Conservatives and the populist Progress Party, who are
likely to share power after Monday's poll, are considering
splitting it into two or more, possibly competing, funds.
They may also allow foreign private equity and
infrastructure investment to create a more diversified, and
hopefully profitable, portfolio.
These would be big changes for the world's biggest sovereign
wealth fund, which owns over 1 percent of all global shares and
invests in some 7,500 foreign companies.
Progress, the most radical among the four possible incoming
ruling parties, also wants the government to withhold more of
the oil money from the fund, using it to develop domestic
"The current organisation has served the fund well through
the start-up period, but it is now time to review whether the
fund should stay within the current framework," Jan Tore Sanner,
the Conservatives' finance spokesman told Reuters.
The current fund can only buy in foreign stocks, bonds and
property. It is not allowed to invest at home as successive
governments felt the public sector was already large and more
spending risked crowding out the private sector, causing
inflation and reducing competitiveness.
The centre-right Conservatives, who promised that their win
would bring no revolution, are considering dividing the money
into two competing funds. They would also allow investments in
private equity and infrastructure abroad for the first time.
But the anti-immigrant, anti-tax Progress Party, who will
hold the balance of power in government has more radical ideas.
Progress, which will enter government for the first time
after toning down its rhetoric, wants to break off three smaller
funds from the main one to focus on renewable energy, foreign
aid and to let Norwegian finance groups manage some of the cash.
Progress is also open to letting the fund invest in
infrastructure projects abroad.
"For a rough estimate, if the fund is worth 4,500 billion
crowns ($755 billion), the main fund would be worth 4,000
billion crowns and the remaining 500 billion crowns would be
divided between three smaller funds," Ketil Solvik-Olsen, the
Progress Party's finance spokesman, told Reuters.
The government is allowed to use 4 percent of the value of
the fund each year in the budget.
Progress objects to the limit, which was set up to save
money for the future and to stop the domestic economy
overheating, and wants to finance new domestic infrastructure
projects via the oil money in the national budget.
However, big changes are not likely to happen quickly,
especially as the incoming government has a big spending leeway
even within the current framework.
"This year, spending of petroleum revenues is nearly 30
billion crowns below what the rule allows for, leaving plenty of
leeway for a new government," Citigroup economist Tina Mortensen
"To put things into a slightly different perspective, if
petroleum spending was to be raised to the 4 percent rule limit
next year, this would imply fiscal stimulus equivalent to more
than 2 percent of mainland GDP (gross domestic product)".
And the Conservative-Progress government will need the
support of at least one centrist party, as they lack an outright
majority and both the Liberals and the Christian Democrats,
their potential allies, are known for their moderation.
"They (the new government) may use more of the money they
are allowed to use than the sitting government has done, as they
have said they want to spend a little more money on
infrastructure," said Kari Due-Andresen, a senior economist at
Some critics say that the Norwegian oil fund needs urgent
reforms because it has delivered a poor rate of return.
"Unless it changes its current strategy and invests heavily
in illiquid assets in faster-growing developing economies, the
(fund) will continue to fail to deliver on its target 4 percent
return," said Sony Kapoor who heads the Re-Define think thank.
"The (fund) sharply underperforms many of its peers directly
as a result of its refusal to be strategic, buy illiquid assets
or invest much in developing countries."
In the second quarter, the fund returned just 0.1 percent on
its investments, as fixed income investments returned -1.4
percent and equities returned 0.9 percent.
But changes will take time. Revamping the oil fund is not
likely to be a top priority as the winning parties focused their
campaign on reforming the country's hospitals, schools or roads,
topics that are more relevant to their voters.
And Norwegian politics tend to be more consensus-oriented
than in other European countries so any major change to the fund
would be discussed in parliament, with the Conservatives seeking
to involve the opposition in the talks.
"Any changes considered will be based on ... political
consensus," said the Conservatives' Sanner, who emphasised that
the party's thinking was still evolving on the issue of what to
do with the fund.
The fund is expected to grow to twice the value of the
entire Norwegian economy within the next decade, providing
Norway with an unprecedented financial buffer.
Since 2001 governments have stuck to the rule of spending no
more than 4 percent of its value into the national budget.
But at the back of the mind of whoever will take over as
finance minister is the fact that at some point the oil fund
will stop growing, with Norway's oil and gas fields slowly
getting depleted over the next several decades.