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Unlisted assets in the government pension fund global : can private equity and infrastructure improve the fund’s profitability and stability?

Fredriksen, Torkel; Lemaire, Jean-Clément
Master thesis
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http://hdl.handle.net/11250/2559833
Issue date
2018
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  • Master Thesis [2971]
Abstract
Is the stock market overpriced? Is it time to sell? Most of the asset pricing research

has been directed towards stochastic discount factors, without definitive answer. We study the

case of the Norwegian Government Pension Fund Global, a large institutional investor that

cannot easily undertake large strategy shifts, hindered by market depth. However, the fund can

enjoy diversification benefits and seek alternative allocations. We review the Fund’s

management performance and analyse two asset classes: Private Equity and Infrastructure.

Private Equity describes a range of companies to be acquired but also a managerial and

capitalistic structure. Infrastructure only refers to a category of real assets to be targeted, some

of which are managed as private equity.

Our findingsindicate that deep structural reforms are needed to enable efficient internal

active management of the Fund. The buyout and growth segments of private equity could then

be quickly added to the GPFG’s investment universe and invested through Separately

Managed Accounts. The SMAs model provides much flexibility and can be adapted as the

GPFG’s management acquires more experience and seek to internally manage the assets.

Renewable electricity production is the most attractive segment within infrastructure. Internal

competence could be quickly more acquired than for private equity, and the class seems

suitable for SMAs.

We exclude other infrastructure categories because of their exposure to political risk

and return profile. Emerging markets should be included in the investment universe for both

private equity and infrastructure. Despite the high level of risk linked to frontier markets, we

suggest letting in the not-so-distant future the GPFG seize opportunities in these markets and

review mitigation strategies proposals.

Finally, we argue that the fund’s active management strategy should be shifted from

asset selection towards value-adding ownership.

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