The Norwegian election result could lead to a smaller portion of the country’s Petroleum Fund being invested in equity markets worldwide.

The failure of Norway’s Labour party to achieve an overall majority has opened the way for several weeks of horse trading as parties try to form a workable coalition government.

It has also cast uncertainty over how Norway’s growing oil billions are to be invested. At present revenues from the country’s huge oil and gas industry are invested in fixed-income securities to provide a source of restructuring investment once reserves run out.

In June, the Storting (Norwegian parliament) approved new guidelines that allowed between 30% and 50% of the fund - or between Nkr30bn- 50bn - to be invested in equities. However, a new government could change that, some market observers in Norway believe.

Of the three parties most likely to form a new coalition, the Liberal Party and Christian People’s Party are in favour of the reforms, but believe a lower proportion of the fund should go to equities. The Conservative Party is against the move.

Meanwhile, between 20 and 30 fund managers are standing ready to hear if their application to manage part of the equity portfolio has been approved, according to Petroleum Fund sources.

They have been asked to submit offers for the management of index portfolios, spreading investments over countries and enterprises so that the portfolio achieves a return that is nearly identical to movements in well-defined share indices, according to Norges Bank, which supervises the fund. The bank says it is hoping to keep management costs low and minimise risks.

The prospective fund managers were due to hear in the autumn if their applications were successful, with a view to starting management in January 1998. That may now be delayed, market observers said.

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