Tuesday, April 12, 2011

Norwegian Govt Pension Fund out of Venture Capital, altogether.

According to RealDeals Europe,  "the Norwegian Government Pension Fund Global (GPFG) has announced that it will diversify its investments into alternative assets, but has rejected private equity in favour of real estate due to unfavourable returns.

The CPFG's report compares GPFG to Calpers as they are of a similar size and observes that their returns from private equity are close to returns from public equity. The report recognises that the future may be different from the past... Historically, when little capital is allocated to a private equity segment (e.g. venture capital) expected returns are high, probably because there is always a steady flow of future Googles and Starbucks out there awaiting venture capitalists. Thus, while knowledge of past returns is apposite, these past returns should not be too naively extrapolated into the future.

Well that sounds like giving up too easily on the asset class. It would seem to me that reducing the asset allocation percentage to the Private Equity & Venture Capital asset class would be a more sensible position, rather than just write it all off.

Indeed there is always a steady flow of future winners, Facebook, Twitter, Zynga, Quora, LinkedIn etc, that the CPFG might miss out on. Notwithstanding the private equity funds that fuel the growth of mid-sized companies in both Norway, Europe and the rest of the World. As we all know, it is startups and mid-sized companies that fuel job growth rather than large multinationals.

Norway’s Government Pension Fund Global (GPFG) tops a ranking of 53 sovereign wealth funds (SWFs) in 37 countries. 

Maybe they'll change their position in the future and hopefully they won't influence other SWFs.