Government Pension Fund Global, Oslo, will shift investments away from Europe as part of a move to new custom benchmarks in equity and fixed income for the 3.5 trillion Norwegian kroner ($609 billion) fund, Norway's Ministry of Finance announced Friday. As a result of the new benchmarks, billions of dollars' worth of assets will flow over time into investments in emerging markets, Asia and the U.S. In equities, which constitute 60% of total assets in the pension fund's target asset allocation, the fund will move to a market-cap-weighted global allocation. In bonds, which have a 40% target, distribution will be set by country GDP weightings. Real estate, a new asset class to the pension fund, can claim up to a 5% target.
The pension fund previously held higher allocations to Europe because the country has traditionally bought most of our goods and services from Europe and it was natural to think that we (were) protecting the fund's international purchasing power against exchange rate fluctuations by investing considerably in European securities markets, Sigbjorn Johnsen, Norway's minister of finance, said in a statement on the ministry's website. However, he explained that research showed that the exchange rate risk in the (fund) is relatively small and less than previously assumed.
The asset allocation of the new equity benchmark is 38% Europe; 35% North America; 15% developed Asia and Oceania; and 12% emerging markets. The previous allocation was 48% Europe; 33% North America; 11% developed Asia and Oceania; and 9% emerging markets.
Asset allocation of the new bond benchmark is 42% developed Americas; 40% developed Europe; 11% developed Asia/Pacific; and 7% emerging markets. The previous allocation was 60% developed Europe; 35% developed Americas; and 5% developed Asia/Pacific.
The changes were recommended by Norges Bank Investment Management, which runs the pension fund's assets.
The ministry also said it intends to change the pension fund's rebalancing rules, following further recommendations by NBIM which has suggested adding an allocation range of three percentage points above or below the target equity allocation, among other changes.