EUROPE - Norway's NOK3.1trn (€397.2bn) Government Pension Fund Global (GPFG) is increasing its allocation to emerging markets and countries outside Europe.

Changes to the regional allocation will be implemented gradually.

This is one of the results in the annual report on management of the GPFG, which the Norwegian government presented to the parliament, Storting, today.

Sigbjørn Johnsen, Minister of Finance, said: "The perspectives this report provides constitute a good basis for the Storting to discuss the development of the fund's investment strategy in a broader context."

Other changes in the future may also include private equity and infrastructure investments.

One of the reasons for the changes is the continuous growth of the fund. Current projections show that the GPFG may double by 2020.

Currently, more than half the fund's capital is invested in Europe because of Norway's links to the region, from where it has traditionally imported the most goods and services.

The reasoning behind having a large chunk of assets in Europe was to protect the fund's international purchasing power against currency fluctuations.

However, the report said: "The review in the report implies that the GPFG's currency risk is relatively limited and smaller than previously assumed. Hence, the current concentration on European investments seems less warranted."

Because global production capacity and financial markets are increasingly located outside Europe, in the long term, the relative allocation to Europe should be reduced, and allocations to the rest of the world likewise increased, the report said. 

It added: "The expected transfers of petroleum revenues to the GPFG in the years to come should make it possible to achieve the bulk of any changes to the allocations through the addition of new investments - in other words, without selling existing European holdings."

The report also looked into the viability of investing in private equity and infrastructure. However, because historical returns seem to imply that private equity has not achieved higher returns than listed stocks - with high management fees being an important reason for this - the fund is not going to invest in the asset class for now. 

It said infrastructure had similar characteristics as private equity, such as high leverage and high management fees.

The fund returned of 9.6% in 2010, 1.1 percentage points above the benchmark.

In other news, the Swedish premium pension system, PPM, is reducing its fees to 0.14% from 0.24% of the value of the individual account assets.

Another piece of good news for members is that, from 12 April, Pensionsmyndigheten, the Swedish Pensions Agency, the administrator of the system, will pay SEK2.3bn (€256m) into members' accounts. This is the largest payment made to date.

The agency demands rebates from the asset management companies that offer funds in the system, and every year, the rebates from the previous year is repaid. The repayment is done through additional units of the funds added to members' accounts.

Last year, the average fee was 0.32% of total assets. Without the rebate system, it would have totalled 0.87%.

Meanwhile, the agency has been an avid critic of "mass transfers" within the system, and its criticism has been heard, with the Pensionsgruppen, a multi-party working group on pensions, proposing to make such transfers illegal.

Mass transfers are when financial advisors use internet bots, also known as web robots, to access client information and swap between funds in the system. These transfers can be done for 100,000 members at the same time.

According to the agency, mass transfers create problems for the fund companies that suddenly get large buy or sell orders. This, in turn, can also have a negative effect on the other fund holders and cause problems for the Pensions Agency's IT system.

The Swedish government is now looking into the law change required, and the agency will take steps within its IT systems to make the transfers impossible. The change is expected to be implemented within months.

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