(Bloomberg) -- Norway’s $1.5 trillion wealth fund recommended that private equity be added to its investment portfolio, reflecting a broader shift among large pension and sovereign funds to diversify beyond public assets.

“An increasingly larger share of global value creation takes place in the unlisted market,” Norges Bank Governor Ida Wolden Bache said Tuesday. “We believe that such an opening could give higher returns for the fund over time. We think it will be possible to invest in unlisted equities in a way that meet our expectations on transparency and responsibility.”

The wealth fund, which owns about 1.5% of listed stocks globally, has asked the finance ministry numerous times — most recently in 2018 — to consider adding unlisted companies to its existing portfolio of stocks, bonds, real estate and renewable energy infrastructure. 

“I see this as a catalyst, similar to when we increased the proportion of equities during the financial crisis,” Chief Executive Officer Nicolai Tangen told reporters. “It is slower in the private equity market now than it has been,” he added, “which means we can enter the market with better terms.”

Previous governments have declined to let the fund in on the global private equity market, citing concerns about transparency and management costs, but in March, the current government asked the central bank to look at unlisted equities again. A final decision is likely to come in the first half of next year.

Read More: Norway Wealth Fund CEO Wants to Invest in Private Equity

If given the green light, the fund would aim to gradually build up a portfolio of unlisted equity assets and would seek to limit expected relative volatility to avoid increasing equity market risk. Between 10 and 15 people would need to be hired to manage the portfolio initially, rising to as many as 30 over time.

An unlisted equity portfolio of 3% to 5% of the fund, or about $40 billion to $70 billion at the fund’s current value, will allow it “to take advantage of the benefits of the fund’s size and facilitate adequate diversification,” it said. That’s less than the $80 billion average of the ten largest private equity investors, it said.

Read More: Norway’s $1.4 Trillion Fund Mulls Private Equity Options

“If the fund is permitted to invest in unlisted equities, we will invest primarily in mid-sized and large buyout funds,” Wolden Bache and Tangen said in the letter published Tuesday. “This will enable us to develop good relationships with a select few partners.”

Assets under management by private equity have grown more than 12% annually since 2010, the fund said in a discussion note published in September. Leverage buyouts, in particular, have outperformed public equities by between 3% and 4% annually on average, the fund said.

Elsewhere in the world, funds similar to Norges Bank Investment Management invest anywhere between 8% to 30% of assets in private equity, Blackstone Inc.’s global head of private equity Joseph Baratta said in September. Speaking to lawmakers in April, Tangen cited Canada’s pension fund and Singapore’s Temasek Holdings as examples of other large investors with holdings in unlisted companies.

Still, there are those that argue that private equity adds costs, without offering higher risk-adjusted returns. If lawmakers want to diversify the portfolio and push for higher returns, they would be better served by resetting the 70-30 split of publicly-listed stocks to fixed income, according to finance professor Karin Thorburn, who teaches at both the Norwegian School of Economics and Wharton School of the University of Pennsylvania.

“The success of the oil fund is based on its disciplined investing, holding a broadly diversified portfolio at a low cost,” Thorburn said in an interview Friday. “The fund was early to adopt a passive index strategy that has now become the gold standard of investing,” she said. “Why change a successful concept without a good reason?”

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The fund said on Tuesday that there is often less information available publicly about unlisted investments and that they aren’t priced daily like public stocks. Total costs relative to invested capital are also expected to be higher for private equity assets, with reported results negative in the early years, it said.

(An earlier version of the story corrected the spelling of Thorburn.)

(Updates with comments from CEO in fourth paragraph, new hires in sixth.)

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