The Government Pension Fund of Norway

About 3 pages (961 words)

Know this topic well? Help others and get FREE products!

The Government Pension Fund of Norway comprises two entirely separate sovereign wealth fund owned by the Government of Norway:

The Government Pension Fund - Global (formerly The Government Petroleum Fund)
The Government Pension Fund - Norway (formerly The National Insurance Scheme Fund)

1 The Government Pension Fund - Global
- 1.1 Debate
- 1.2 The Ethical Council
2 The Government Pension Fund - Norway
3 References
4 See also
5 External links

The Government Pension Fund - Global

The Government Pension Fund - Global (Norwegian: Statens pensjonsfond - Utland) is a fund where the surplus wealth produced by Norwegian petroleum income is put. The fund changed name in January 2006 from its previous name The Petroleum Fund of Norway. The fund is commonly referred to as The Petroleum Fund (Norwegian: oljefondet). As of the valuation in June 2007, it is the largest pension fund in Europe and the second largest in the world ^[1] with a value of NOK 1.939 trillion. The purpose of the petroleum fund is to invest parts of the large surplus generated by the Norwegian petroleum sector, generated mainly from taxes of companies, but also payment for license to explore as well as the State's Direct Financial Interest and dividens from the partial ownership of StatoilHydro. It is predicted that revenue from the petroleum sector is now in its peak period and will decline over the next decades. The Petroleum Fund was established in 1990 after a decision by the legislature assembly Storting to counter the effects of the forthcoming decline in income and to smooth out the disrupting effects of highly fluctuating oil prices. The fund is administered by Norges Bank Investment Management (NBIM), a part of the Norwegian Central Bank. It is currently the largest pension fund in Europe and similar in size to the California public-employees pension fund (CalPERS), the largest public pension fund in the United States. NBIM forecasts that the fund will reach NOK 3.044 trillion by the end of 2009. Since 1998 the fund has been allowed to invest up to 50% of its portfolio in the international stock market.

Debate

Due to the large size of the fund relative to the low number of people living in Norway (4.7 million people in 2006), the Petroleum Fund has become a hot political issue, dominated by three main issues.

Whether the country should use more of the petroleum revenues on the state budget instead of saving the funds until later. The main matter of debate is to what degree increased government spending will increase inflation.
Whether the high exposure (around 40% in 2003) to the highly volatile, and therefore risky, stock market is financially safe. Others claim that the high differentiation and extreme long term of the investments will dilute the risk and that the state is losing considerable amounts of money due to the low investment percentage in the stock market.
Whether the investment policy of the Petroleum Fund is ethical.

The Ethical Council

Part of the investment policy debate is related to the discovery of several cases of investment by The Petroleum Fund in highly controversial companies, involved in businesses such as arms production and tobacco. The Petroleum Fund’s Advisory Council on Ethics was established November 19, 2004 by royal decree. Accordingly, the Ministry of Finance issued a new regulation on the management of the Government Petroleum Fund which also includes ethical guidelines. On January 5, 2006, the new Minister of Finance Kristin Halvorsen removed United Technologies, Boeing, Northrop Grumman (these three for production of Intercontinental ballistic missiles), Honeywell International (simulations of nuclear explosions), BAE Systems, Finmeccanica (nuclear missiles for planes) and SAFRAN (nuclear missiles for submarines) from the portfolio, after suggestion from the Ethical Council.^[2] In June 2006, Wal-Mart was similarly removed from the portfolio for ethical reasons. ^[3] Already on the list by 2006 was Kerr-McGee, General Dynamics Corporation, L3 Communications, Raytheon Company, Lockheed Martin, Alliant Techsystems, EADS, Thales Group and Singapore Technologies Engineering. Most of these companies are on the list for production of key components for cluster bombs. In November 2007 the Ethics Council advised the removal of London-listed mining company Vedanta Resources on the grounds of environmental and human rights abuses.

The Government Pension Fund - Norway

The Government Pension Fund - Norway (Norwegian: Statens pensjonsfond - Norge) was established by the National Insurance Act (Folketrygdloven) in 1967 under the name National Insurance Scheme Fund (Norwegian: Folketrygdfondet). The name was changed at the same time as the former Petroleum Fund on January 1, 2006. This fund continues to be managed by a separate board and separate government entity still named Folketrygdfondet. The Government Pension Fund - Norway had a value of NOK 106.9 billion at the end of 2006. Unlike the Global division, it is instructed to invest in domestic companies on the stock market, dominantly on Oslo Stock Exchange. Due to this, the Government Pension Fund - Norway is a key stock owner in many large Norwegian companies.