Norway is the world’s seventh largest exporter of oil and second largest exporter of gas. Petroleum counts for close to ¼ of total production in Norway, close to 30 per cent of state revenues, and about half of the total Norwegian export. The high share of GDP makes the petroleum resources important to the economy, moreover they give us a fiscal leeway different from most other countries.
The Government Pension Fund Global is saving for the future generations of Norway. One day the oil will run out, but the return on the fund will continue to benefit the Norwegian population. The fund is integrated into the government budget. One fundamental principle of Norwegian fiscal policy is the so-called budgetary rule, namely that, over the course of a business cycle, the government may spend only the expected real return on the fund, estimated at 4 percent per year. 117,3 billion kroner was transferred to the national budget from the fund in 2013. This helps phase oil revenue into the economy gradually, and spending just the return on the fund rather than eating into its capital means that the fund will also benefit future generations. Since Norges Bank Investment Management was established in 1998 until the end of 2013, the fund has generated a gross annual return of 5.7 percent. After management costs and inflation, the annual return was 3.6 percent. The return in USD was 6.7 percent.
Long-term, sound management of the Fund helps to ensure that both present and future generations can benefit from Norway’s petroleum wealth. The investment objective is to maximize the purchasing power of the fund capital, given a moderate level of risk. The adoption of responsible investment practices supports this objective. The Government Pension Fund has a very long investment horizon. The Fund has no clearly defined liabilities, and it is unlikely that the State will need to withdraw large amounts from the Fund over a short period of time. Generally speaking, these characteristics give the Fund a greater ability to absorb risk than many other investors. Prudent long-term management is necessary to ensure that the revenues originating from the petroleum resources will benefit both current and future generations. Transparency is a prerequisite for securing widespread confidence in the management of the Government Pension Fund.
The Norwegian parliament has set the framework in the Government Pension Fund Act and the Ministry of Finance has formal responsibility for the fund’s management. The operational management is delegated to the Norwegian central bank (Norges Bank), and the central bank’s Executive Board has in turn delegated management to Norges Bank Investment Management.
About the Fund’s return in 2013
In 2013 the Government Pension Fund Global returned 15.9 percent, due principally to strong stock markets. Equity investments returned 26.3 percent, fixed-income investments produced a zero return, and real estate investments returned 11.8 percent. The return was 1.0 percentage point higher than on the benchmark indices the fund is measured against.
The fund's market value grew by more than NOK 1 200 billion during the year to NOK 5 038 billion. The return for the year was NOK 692 billion, NOK 239 billion in new capital was transferred from the government, and a weaker krone increased the value of the fund in krone terms by NOK 291 billion. By the end of 2013, the fund had received total transfers of NOK 3 302 billion and amassed a cumulative return of NOK 1 799 billion. The fund's asset allocation was 61.7 percent equities, 37.3 percent fixed income and 1.0 percent real estate.
The fund was invested in 8,213 companies at the end of 2013, up from 7,427 a year earlier. The fund’s average holding in the world’s listed companies, measured as its share of the FTSE Global All Cap stock index, was 1.3 percent at the end of 2013, up from 1.2 percent a year earlier. Holdings were highest in Europe at 2.5 percent. Holdings in emerging markets averaged 1.4 percent, up from 1.1 percent, while holdings in developed markets were unchanged at 1.3 percent. The fund’s investments were spread across 82 countries at the end of the year, up from 72 a year earlier. Of the fund’s capital inflows of 239 billion kroner in 2013, around 7.9 percent were invested in emerging markets. At the end of 2013, 14.8 percent of the fund was invested in Asia, up from 12.9 percent.
About investments in China
At the end of 2013, the fund had invested 73 billion kroner in 364 companies in China and 39 billion kroner in 164 companies in Hong Kong. Chinese equities returned 17.4 percent. Several factors impacted positively on the market, and the decision to lift the ban on new stock market launches boosted financial stocks. The fund’s total quota was increased in 2013 and stood at 1.5 billion dollars at the end of the year. Chinese stocks accounted for 2.5 percent of the fund’s equity investments and was its single largest emerging market at the end of the year. Moreover, by yearend the fund had invested 11,8 billion kroner in 10 fixed income investments in China and 4,3 billion kroner in 3 fixed income investments in Hong Kong. Norges Bank Investment Management has an office in Shanghai.
Fact Sheet about the Government Pension Fund Global:
Annual Report of the Government Pension Fund Global:
Detailed information on the Fund’s holdings: