1

Sovereign Wealth Funds and financial market stability

Oslo, 20 May 2008

Martin SkanckeDirector General

Asset Management Department

2

Norwegian Ministry of Finance

The petroleum sector in relation to the Norwegian economy

Source: Statistics Norway, Ministry of Finance

25 % 38 % 24 % 51 %

The petroleum sector’s share of GDP

The petroleum sector’s share of state revenues

The petroleum sector’s share of total investments

The petroleum sector’s share of total exports

3

Norwegian Ministry of Finance

PFG is among the largest (and fastest growing) funds in the world-The Fund’s market value. Billion USD, year end.

Source: Ministry of Finance

0

200

400

600

1996 1999 2002 2005 20080

200

400

600 • The Norwegian fund, USD 375bn and growing, a tool for: long-term petroleum wealth

management short and medium term

stabilization

• The Norwegian petroleum fund model: integrated with fiscal budget invested only abroad transparency

4

Norwegian Ministry of Finance

Strong increase in pension expenditure is a challenge for public finances

• Calls for a cautious fiscal policy over the next decades

0

5

10

15

20

25

2006 2015 2024 2033 2042 2051 20600

5

10

15

20

25

Pensions

Expected real return of the Fund

Pension expenditure and expected real return on the Fund as share of mainland GDP

Source: Statistics Norway, Ministry of Finance

5

Norwegian Ministry of Finance

Return on fund investments

Fund Transfer to finance non-oil budget deficit

Revenues

Expenditures

State Budget

The Fund mechanism – integrated with fiscal policy

Fiscal policy guideline(over time spend real return of the fund,

estimated at 4%)

Petroleum revenues

6

Norwegian Ministry of Finance

Pension Fund - Global Governance Structure

Ministry of Finance

Regulations

Performance reports

Central Bank

(NBIM)

Norwegian Parliament

Pension Fund Act

Performance reports and strategic changes reported in National Budgets and National Accounts

Legislator

Principal

Manager

Management agreement

Office of the Auditor General

Norges Bank AuditAdvisors

Advisory / consultancy agreement

Founded on Act, regulations and separate contracts

7

Norwegian Ministry of Finance

Norway’s fund: Key features

• Aim: Maximize financial returns

• Financial investor with non-strategic holdings

• Separation of roles between owner and operational manager

• High degree of transparency

• Ethical guidelines that are transparent and predictable, based on internationally recognized standards

8

Norwegian Ministry of Finance

The value of SWFs

• Free capital movements Allow capital exporters to

- decouple consumption and current revenues- improve risk/return ratio on savings

Allow capital importers to- decouple investments and domestic savings- improve productivity through productive investments

Misguided regulation and protectionism is detrimental to us all

• SWFs may contribute to increased stability in financial markets Long time-horizon No liabilities Little or no need for liquidity in the short term

9

Norwegian Ministry of Finance

Our rebalancing strategy means that we buy in falling markets

Source: Norges Bank

-10

0

10

20

30

40

50

jan

feb

mar ap

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1998 1999 2000 2001 2002 2003 2004 2005 2006

Pu

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ases

in N

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bn

0

20

40

60

80

100

120

140

160

180

Pri

ce in

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100

Equities

Equity price

Average

10

Norwegian Ministry of Finance

Norway’s position in the debate on SWF

• We support the cooperative effort, facilitated by the IMF, of identifying and drafting a set of voluntary, generally accepted principles and practices for SWF. transparency a key issue

• Furthermore, we support the OECD’s work on providing guidance to recipient countries on SWF investments. openness to investment and equal treatment of investors a

fundamental principle legitimate concerns related to national security

• We see no cause for regulations that would restrict the present investment activities of our Fund, or any regulation imposing restrictions on SWF over and above those applying to non-SWF investors