Norway’s Government Pension Fund, also known as the Norwegian Oil Fund, the Norwegian Government Fund Global was established in 1990 to invest the surplus revenues of the Norwegian petroleum sector.
Surpassing the $1 trillion mark, it is now the time to undergo the most drastic changes to its mandates in decades as it ratchets up investment risk and pulls back on the amount of oil money it can spend. The world’s largest sovereign wealth fund was driven by health-care stocks in the second quarter.
If the Norweguan fund had been a country, it would rank somewhere ahead of Mexico and behind Indonesia in terms of gross domestic product. In September this year it was worth $192,307 per Norwegian citizen.
“The Government Pension Fund Global has a long investment horizon. The assessments of the equity share is henceforth based on long term considerations, including assessments of expected return and risk and the state’s ability to carry risk in the Fund. Returns are likely to be lower going forward, as assessed by two separate public commissions and Norges Bank (Bank of Norway). We must adapt to this fact and therefore propose to adjust the return estimate downwards,” Siv Jensen, Norway’s Finance Minister told CNBC via email.
The fund produced a 7.34 percent gain in the first six months of 2017, according to an investment report. That compares with a 3.33 percent loss in the first half of 2016.
The Norwegian wealth fund has now a larger value than most economies for the first time in its history. The fund holds shares, portfolios of real estate and fixed-income investments. Many companies are excluded by the fund on ethical grounds.
The vast reach of the fund is exemplified by the fact it already invests in 78 countries, owning around 1.3 percent of listed companies worldwide and 2.3 percent of listed companies in Europe. The investment pool serves essentially as an endowment for Norwegian citizens.
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“I don’t think anyone expected the fund to ever reach $1 trillion when the first transfer of oil revenue was made in May 1996,” said Yngve Slyngstad, CEO at Norges Bank Investment Management, in a news release.
In fact, The Government Pension Fund of Norway comprises two entirely separate sovereign wealth funds owned by the government of Norway.
The Government Pension Fund Norway is smaller and was established in 1967 as a type of national insurance fund. It is managed separately from the Oil Fund and is limited to domestic investments and is therefore a key stock holder in many large Norwegian companies, predominantly via the Oslo Stock Exchange.
Norway’s central bank governor has been vocal over the past several months in asserting that the government must desist from spending so much of the fund’s assets.
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“It would be unwise to increase petroleum revenue spending from today’s level even if the [fund] continues to grow,” Øystein Olsen, governor of Norges Bank stated on Thursday, adding that the government risked running a budget deficit of up to 8 percent of GDP (gross domestic product) excluding contributions from oil and shipping.
“Consideration of environmental, social and governance related risk factors may result in divestments from companies where we see elevated long-term risks,# said a spokesman for the fund. “In total, we have divested from 210 companies on these considerations.”
Norway’s Government Pension Fund Surpasses the $1 Trillion Mark, written by Tor Kjolberg
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