* Reforms to fund expected to be announced in April
* May give fund leeway to broaden range of eligible
* More oversight may be needed, say Liberals, Christian
By Joachim Dagenborg and Gwladys Fouche
OSLO, March 21 Norway's huge sovereign wealth
fund might need to tighten its regulatory framework, two parties
the government relies on to stay in power said, sharpening a
debate about reforms that could see the fund expand its range of
Activities of the fund, the world's largest with assets of
$840 billion, are currently limited to stocks, bonds and real
estate - lower-risk assets that help it generate a regular
income for the state from Norway's oil revenues.
But the centre-right government of Erna Solberg plans
reforms, due to be announced in April and aimed at improving the
fund's rate of return - which has undershot its 4 percent target
since it was established in its current form in 1998.
These may include allowing it to invest in potentially
higher yielding but less transparent categories such as private
equity and infrastructure - a vexed issue following the fund's
investment in Formula One motor racing.
Formula One cancelled plans for an IPO after the $1.6
billion investment was made, technically putting the fund in
contravention of a regulation that only allows it to buy stakes
in unlisted companies if they plan to float.
The fund's head has since acknowledged mistakes were made in
connection with the investment.
The government has a minority in parliament and, to push the
reforms through, will need the support of two small centrist
parties, the Liberals and the Christian Democrats.
Both have expressed concerns about how the fund's current
structure would cope with a broader range of investments.
"For the moment I am not judging anyone. But we need to get
some clarity about how the organisation is planning to deal with
an investment strategy that will be more demanding," the leader
of the finance committee in parliament, Hans Olav Syversen of
the Christian Democrats, told Reuters.
He said the investment in Formula One showed levels of risk
were higher when the fund invested in unlisted firms.
"How you should build up the competence you need to
implement a new strategy must be a central question in the
coming parliamentary hearings," said Syversen.
ETHICS AND OVERSIGHT
The Liberals said tighter supervision of the fund's
management may be required.
"An important question to ask is whether the formal
structures to control the fund are good enough," Terje Breivik,
financial spokesman for the Liberals, told Reuters.
"I am not convinced parliament's need for control is well
catered for under the present structure."
He suggested the auditor general's office, which probes the
finances of public bodies, could be allowed to audit the fund.
Sony Kapoor, a close watcher of the fund's activities, said
a solution may be to create an "Oil Fund Watch" that would
provide independent financial expertise advice to parliament.
"As the size of the fund becomes bigger and invests in
illiquid assets, only a strong parliament drawing on specialist
expertise can oversee the fund in a manner that is necessary to
maintain legitimacy," said Kapoor, a senior visiting fellow at
the London School of Economics.
Another issue of debate is whether the council on ethics,
which makes recommendations on companies it deems are not
ethical enough for the fund to invest in, should be made a part
of the fund's management.
The council's head told Reuters he was not in favour, as
that would make decisions to exclude a company, and the reasons
behind them, less likely to be published, as they are today.
"We should report back to the people of Norway," Ola Mestad
said in an interview. "And there is a strong interest
internationally in such assessments."
The fund has so far blacklisted 63 firms, including makers
of nuclear arms, anti-personnel landmines, cluster bombs and
The fund may also be told to invest more in renewables and
developing countries, something the parties in power agreed on
when they formed government in October.
(Editing by John Stonestreet)