Government Pension Fund of Norway

The Government Pension Fund - Global (Statens pensjonsfond - Utland in Norwegian) is the Norwegian fund where the surplus wealth produced by petroleum income is put. The fund changed name in January of 2006 from the previous name: The Petroleum Fund of Norway. The fund is commonly referred to as The Petroleum Fund (oljefondet in Norwegian). Its the largest pension fund in Europe with a value of US$ 266 billion.

The Government Pension Fund is comprised of the Government Petroleum Fund and the National Insurance Scheme Fund. Thus, the former petroleum fund is now titled "The Government Pension Fund - Global" and the Insurance Scheme Funds new title is "The Government Pension Fund – Norway".

The purpose of the petroleum fund is to invest parts of the large surplus generated by the Norwegian petroleum sector (mainly taxes of companies, but also payment for license to explore). 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 Norwegian Parliament 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 reached a portfolio value of over NOK 1.784 trillion (US$ 289 billion) in the fourth quarter of 2006. 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.

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 (4.6 million people in 2005), the Petroleum Fund has become a hot political issue. The three major themes of discussion are:

• Whether the country should use more of the current oil revenues to solve current problems instead of putting aside the wealth and essentially "gambling" it by investing in financial instruments through The Petroleum Fund: the main matter of debate is usually whether this could drive inflation out of control. The change of name of the fund from "Petroleum Fund" to "Pension Fund" was for pedagogical reasons. There is no change in the management of the fund.
• 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 ICBMs), 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. [1] In June 2006, Wal-Mart was similarly removed from the portfolio for ethical reasons. [2] Already on the list was: Kerr-McGee, General Dynamics Corporation, L3 Communications Holdings, Raytheon Company, Lockheed Martin, Alliant Techsystems, EADS, Thales Group and Singapore Technologies Engineering.

See also

• Economy of Norway
• Energy Resources of Norway
• Alaska Permanent Fund
• Permanent University Fund - funds universities in Texas

External links

• Official site
• Official site of the norwegian finance department