‘The Government Pension Fund is our national savings account, and an important part of fiscal policy. We practice great transparency about the Fund’s management. Norges Bank and Folketrygdfondet have successfully managed the Government Pension Fund Global (GPFG) and Government Pension Fund Norway (GPFN), respectively. The Government has now decided to further strenghten the management of the Fund,’ says Minister of Finance Siv Jensen.
Evaluation of unlisted investments
Investment in unlisted real estate and infrastructure by both the GPFG and GPFN is a key topic in the white paper, which lays out plans to change the regulations governing the GPFG’s real estate investments. (lenke til egen PM).
Positive performance in a turbulent year
The value of the Government Pension Fund totalled NOK 7,670 billion at the end of 2015, with the GPFG and GPFN contributing NOK 7,471 billion and NOK 198 billion, respectively. More than half of last year’s increase in the GPFG’s value is attributable to the depreciation of the Norwegian krone. The GPFG achieved a return of 2.7 percent in 2015, measured in the currency basket of the Fund. The GPFN achieved a return of 7.0 percent measured in NOK. The managements costs of the two funds amounted to 0.06 percent and 0.09 percent of fund capital, respectively.
Both Norges Bank (GPFG) and Folketrygdfondet (GPFN) achieved an excess return of close to 0.5 percentage points compared to the benchmark indices set by the Ministry of Finance.
‘For many years, substantial petroleum revenues have boosted the GPFG’s capital year by year. Going forward, its growth will be determined primarily by returns in the international financial markets,’ says Ms Jensen.
The Ministry of Finance adopted new reporting and risk management requirements for the GPFG on 1 February 2016. The mandate now requires, among other things, reporting on investment strategies, the sources of positive and negative excess returns, and the results achieved under all investment strategies entailing substantial costs or high relative risk. Further, Norges Bank’s Executive Board has to issue a public evaluation of its management performance.
At the same time, the Bank has been given a somewhat higher limit to deviate from the benchmark index.
‘Transparency is both of independent value and provides a basis for evaluating management performance. Transparency may also strengthen the ability to pursue profitable long-term strategies in periods when with returns below the benchmark index,’ says the Minister of Finance.
The Government Pension Fund has overarching financial objectives, but also aims to be a responsible investor. Climate and ethical considerations have long been a part of its management.
Two new criteria have recently been included in the ethically motivated guidelines on the exclusion of companies from the GPFG. One criterion targets conduct resulting in unacceptable greenhouse gas emissions at aggregate company level. The other targets companies engaged in coal extraction and coal-based energy production.
The white paper discusses the work of the Council on Ethics, Norges Bank and Folketrygdfondet in 2015, including initial assessments of the new division of labour for excluding companies and Norges Bank’s new human rights expectation document.