sovereign equity for economic development - the norwegian case
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Sovereign Equity forSovereign Equity forEconomic DevelopmentEconomic DevelopmentEconomic DevelopmentEconomic Development
The Norwegian Case
Vidar OvesenFormer Deputy Minister of Finance, Norway
Sovereign Investment Workshop
Sovereign Investment Lab, Università Bocconi
28 June 2013
Petroleum sector is key for the Petroleum sector is key for the Norwegian economy Norwegian economy
23% 30% 26% 49%
The petroleum sector’s
h f GDP
The petroleum sector’s
h f
The petroleum sector’s
h f l
The petroleum sector’s
h f l share of GDP share of state revenues
share of total investment
share of total exports
2
Source: Statistics Norway (Figures as of year-end 2011)
Norway’s Government Pension Fund Norway’s Government Pension Fund Global (GPFG)Global (GPFG)Government� Added� Ethical�guidelines� Including�real�Government�Pension�Fund�established�by�Law�
�
Added�equi es�to�the�por olio�(SAA:40�equi es/
Ethical�guidelines�established�–�exclusion�of�certain�
i t t �
Including�real�estate�
investments�(<�5%)�
� equi es/60%�bonds)�
investments�
1990� 1996�Initial
Capital T f �
1998� 2001�Fiscal rules
introduced to h
2004� 2007�Strategic equity
2010� 2012�New investment
mandates: Transfer� govern the
transfers to the annual budget�
allocation increased to
60%�
increased focus on emerging
markets�
The investment strategy has gradually changed in line with increased capacity and understanding of risks and ownership
GPFG GPFG –– market valuemarket value
Market value 1996 2012 USD billion Market value 1996 – 2012, USD billion
700
800
700
800$685 billion
600
700
600
700
400
500
400
500
200
300
200
300
0
100
0
100
4
Source: Norges Bank and Ministry of Finance
Key features Key features –– Norwegian modelNorwegian model
All revenues deriving from petroleum flow into the GPFG (receipts and return)(receipts and return).
The GPFG is integrated with the state budget and resources spent domestically are subject to decisions made b th P li tby the Parliament.
A fiscal rule guides the transfers from the GPFG to the national budget with the aim of protecting the economy g p g yfrom oil price volatility.
The GPFG is a long term financial savings mechanism to ensure revenue from natural resources benefiting currentensure revenue from natural resources benefiting current and future generations (stabilisation and savings).
The GPFG is invested only in the international financial ymarket based on diversification and a long term investment horizon.
The GPFG is managed with a high level of transparency The GPFG is managed with a high level of transparency.
5
GPFG governance structureGPFG governance structure
Norwegian Parliament (Stortinget)
Government Pension Fund Act
National BudgetAnnual Report
Ministry of Finance
Quarterly & Annual Reports
Investment Strategy
Management mandate
(risks mgmt reporting
Norges Bank (NBIM)
Investment Strategy Advice
(risks mgmt, reporting and responsible inv.)
Norges Bank (NBIM)
GPFG: Investment strategyGPFG: Investment strategy
GPF-Global’s Benchmark Index (Strategic Asset Allocation)
Global equities (60 per cent)
Global fixed income (35-40 per cent)
Global Real Estate(≤ 5 per cent)(60 per cent) (35 40 per cent) ( 5 per cent)
Insights from NorwayInsights from Norway Natural resource revenues are uncertain and highly
volatile – a SWF may act as a buffery The fiscal policy must be adjusted to the current
economic situation - overheating of the economy g yand inflation severely damage the non-mineral sector
Don’t move too fast – and don’t take more risk than you can carry - anchor the investment strategy y y gyin the parliament
Investment returns are driven by the investment Investment returns are driven by the investment strategy, not by active management
Establish a clear division of responsibilityEstablish a clear division of responsibility Transparency and accountability are key
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