Press Release

6 October 1997

New regulations for the government petroleum fund

The Ministry of Finance has issued new guidelines for the management of the Norwegian Government Petroleum Fund which will enter into force on 1 January 1998. The new guidelines are based on the outline given in the Revised National Budget for 1997, which was approved by the Storting, as well as recommendations from Norges Bank given in a letter of 22 August.

Between 30 and 50 per cent of the fund will be invested in foreign equity markets, and the remaining part will mainly be invested in bonds. The Fund's equity investments will be spread over time to prevent the Petroleum Fund's purchases from influencing prices in markets in which the Fund is to be invested. Equities have historically given higher returns than bonds. At the same time portfolios combining equities and fixed income investments can give a more stable return over a long-term investment horizon.

The fund will be invested in developed markets only. At this time it will not be invested in emerging markets.

The fund's investments in equities will be limited to portfolio investments. Investments in individual companies have been capped at 1 per cent.

The fund shall be invested in accordance with the following regional distribution:

• The Americas (USA and Canada): 20-40 per cent
• Europe (Belgium, Denmark, Finland, France, Italy, Ireland, the Netherlands, Portugal, Spain, the UK, Switzerland, Sweden, Germany and Austria): 40-60 per cent
• Asia and Oceania (Australia, Hong Kong, Japan, New Zealand and Singapore): 10-30 per cent.

The fund will be invested in countries with which Norway has extensive political and economic ties and in which a considerable number of Norwegian companies invest. A complete list of the fund's investments will be made public when the annual accounts are submitted to the Storting. For the equity portfolio Norges Bank will use recognised external fund managers who must be under public supervision in their home countries. The guidelines require that such managers must have adequate internal ethical guidelines for their activities.

The following material is available:

• Regulation on the Management of the Government Petroleum Fund
• Appendix explaining the Fund's benchmark portfolio
• Letter from Norges Bank of 22 August 1997

Regulation on the Management of
the Government Petroleum Fund

Issued on 3 October 1997 by the Ministry of Finance pursuant to § 7 of the Act of 22 June 1990 No. 36 relating to the Government Petroleum Fund.

§ 1 Management of the Government Petroleum Fund

Norges Bank is responsible for the operational management of the Government Petroleum Fund on behalf of the Ministry of Finance. The Bank may use other managers. Such managers must have adequate internal ethical guidelines for their activities.

Norges Bank shall submit reports on the management of the Government Petroleum Fund in accordance with the guidelines set out by the Ministry of Finance.

§ 2 Placement of the Fund

The Government Petroleum Fund shall be placed in a separate account in the form of NOK deposits in Norges Bank. Norges Bank shall invest this capital separately in its own name in financial instruments and cash deposits denominated in foreign currency (the separate portfolio).

Norges Bank shall seek to achieve the highest possible return on the separate portfolio within the limits set out in the regulation.

§ 3 Accounting return on Government Petroleum Fund

The value of the Government Petroleum Fund's NOK account shall be equivalent to the value of the separate portfolio. Norges Bank's book return on the separate portfolio, less remuneration to Norges Bank, shall be added to the Petroleum Fund's NOK account on 31 December every year.

§ 4 Benchmark portfolio and relative risk

The Ministry of Finance, following consultation with Norges Bank, shall establish a benchmark portfolio for the separate portfolio. The Ministry shall set a maximum limit for the expected differences in return between the separate portfolio and the benchmark portfolio, in the form of a measure of tracking error.

§ 5 Asset distribution

The separate portfolio shall be invested in accordance with the following distribution of assets:

Fixed income instruments 50 - 70%

Equity instruments 30 - 50%

When calculating the asset distribution in accordance with the first paragraph, equity derivatives shall be treated as if investments had been made directly in the underlying equity instruments. The asset distribution pursuant to the first paragraph is based on the total portfolio, excluding derivatives.

§ 6 Currency and market distribution

The separate portfolio shall be invested in accordance with the following currency and market distribution:

Europe 40 - 60%

The Americas 20 - 40%

Asia and Oceania 10 - 30%

The following list states where the separate portfolio can be invested:

Europe: Belgium, Denmark, Finland, France, Italy, Ireland, the Netherlands, Portugal, Spain, the UK, Switzerland, Sweden, Germany and Austria.

The Americas: Canada and the US

Asia and Oceania: Australia, Hong Kong, Japan, New Zealand and Singapore.

The separate portfolio can be invested in equity instruments listed on the stock exchanges in the countries/region listed above and in fixed income instruments issued in the currency of the above-mentioned countries/region or in the European Currency Unit, the ECU. Issuers of fixed income instruments shall be registered in one of the above-mentioned countries/region or be an international organisation.

§ 7 Interest rate risk

The modified duration on the total portfolio of fixed income instruments and associated derivatives shall be between 3 and 7.

§ 8 Credit risk

The Ministry of Finance shall establish limits for credit risk in the separate portfolio.

§ 9 Risk systems and risk management

Norges Bank shall ensure that satisfactory risk systems and control routines exist for instruments used in the management of the Fund. Derivatives may be used to the extent that the financial exposure they give does not exceed that which would result from investing directly in the underlying instruments.

§ 10 Equity ownership

The separate portfolio may not be invested in more than 1 per cent of the share capital in any one company. Norges Bank shall not exercise its ownership rights linked to share holdings unless it is necessary in order to secure the financial interests of the Fund.

§ 11 Entry into force

The regulation enters into force on 1 January 1998, with the exception of §§ 5 and 6 which shall enter into force on the date decided by the Ministry of Finance. The regulation on the management of the Government Petroleum Fund of 10 May 1996 will be revoked on 1 January 1998.