By Joachim Dagenborg and Terje Solsvik
OSLO (Reuters) – Developed economies must reverse a two-decade decline in stock market listings to attract investment and revive growth, Norway’s $870 billion sovereign wealth fund, the world’s largest, said on Wednesday.
Governments must convince firms to go public by offering tax breaks and slashing red tape, while bankers should cut the cost of initial public offerings and index providers must include more stocks in benchmarks, the chief investment officer of Norges Bank Investment Management (NBIM) told Reuters.
Many small companies remain unlisted due to complex regulation, expensive equity sales and a fear of low valuations, but even big firms now resist going public, including sharing-platforms Uber [UBER.UL] and Airbnb, and social media outlets Snapchat and Pinterest, the NBIM’s Oeyvind Schanke said.
“Those four alone have an implied combined market value of more than 1,000 billion Norwegian crowns ($120.5 billion),” Schanke said in an interview. “It’s a market we can’t invest in.”
Unlike some other funds, including Saudi Arabia’s Public Investment Fund which recently invested $3.5 billion in ride-hailing company Uber, the Norwegian fund is allowed by the country’s parliament to invest only in listed firms and in the final run-up to a public offering.
Restrictions on its mandate mean the fund passed on an offer from Facebook
“It’s a worry if a steadily growing part of the new economy is created outside of the publicly listed framework,” Schanke said. “Research has shown clearly that countries with a high degree of listed firms experience higher real economic growth.”
The fund said the number of companies quoted on stock exchanges in the United States fell by almost 50 percent between 1996 and 2012 and that growing regulatory burdens were partly to blame.
However NBIM, which holds stakes in more than 9,000 companies and owns about 1.3 percent of all listed firms globally, does not plan to ask permission from Norwegian authorities to invest in non-listed companies.
The improved liquidity, transparency and visibility that come with initial public offerings, along with the importance of listings in spurring economic growth and job creation, should be at the forefront of policy-making, NBIM said.
“If the challenge now is low growth, then some of the resources should perhaps be directed at this problem – how to get more small companies to list,” Schanke said.
Geographical differences are also large, NBIM said, noting that while in Britain around 60 percent of company equity is listed, some major European countries have much lower levels.
“Looking at a country like Spain, where less than 20 percent are listed, that’s a problem. There are too many small firms that struggle to raise capital,” Schanke said.
“To investors like us, the way we’re set up and which track a benchmark, investments in Spanish firms would rise if they became more available,” he added.
Sixty percent of NBIM’s assets were invested in stocks at the end of the first quarter, in line with its mandate, while 37 percent were in fixed income investments and three percent in real estate.
(Editing by Gareth Jones)