Press Releases

13. May 1997

Revised National Budget 1997

• The Norwegian Government Petroleum Fund: Might Invest in Equities
• linkdoc006005-070097#docContinued strong growth

The Norwegian Government Petroleum Fund: Might Invest in Equities

In the Revised National Budget 1997 there is an assessment of the guidelines for the management of the Government Petroleum Fund, recommending equities to be included in the fund's investment alternatives.The Government Petroleum Fund may currently only invest in fixed income securities.

The fund may grow from today's level of 50 bn kroner to approximately 425 bn kroner by the end of 2001, i.e. from 5 per cent of GDP to over 30 per cent of GDP, cf. the enclosed figure.

The aim of the management of the Government Petroleum Fund is to maximise the fund's international purchasing power at the time when it is necessary to draw on the fund. The fund is to be invested abroad in financial assets. Presently, the fund is mainly invested in low risk assets such as government bonds.

Norges Bank, which is responsible for the operational management of the Government Petroleum Fund, has recommended to The Ministry of Finance that the fund's investment alternatives should be broadened to include equities. The bank indicates that the share of equities in the portfolio should be at least 30 per cent.

Although equities are considered riskier in the short-term, experience shows that portfolios combining equities and fixed income investements can give a more stable return over a long-term investment horizon. At the same time the expected rate of return will be higher.

It is the preliminary assessment of The Ministry of Finance that the share of equities in the first years should be in the range of 30 to 50 per cent. A decision will be taken when new guidelines for the fund are presented this autumn. The new guidelines will enter into force from 1 January 1998.

In the Revised National Budget 1997, the Governement states that the Petroleum Fund's investments in equities will be limited to portfolio investments, i.e. only limited holdings in a large number of individual companies. The fund's equity holdings will be invested in such a way that they will receive a return in line with a well diversified portfolio of stocks held on large international stock exchanges.

The Ministry of Finance is responsible for the management of the fund and sets the guidelines for the fund's investments. The operational portfolio management is carried out by Norges Bank.

In the same way that Norges Bank has placed the management of parts of the bank's ordinary currency reserves with external fund managers, it might be suitable to place the management of part of the Government Petroleum Fund with other fund managers. Norges Bank will, however, keep the overall responsibility for the operational management of the fund.

Background information on the Government Petroleum Fund

The fund is an integrated part of the central government fiscal budget and is to reflect goverment saving. Money is only allocated when the budget (including petroleum revenues) shows a surplus.

The fund's income: Government net petroleum revenues + return on investment.

The fund's expenditure: Transfer to finance the non-oil budget deficit.

The fund is formally a krone denominated account in Norges Bank, the value of which corresponds to a separate portfolio of foreign assets invested by (and in the name of) Norges Bank.

The fund's assets are to be invested abroad in financial assets. The aim is to maintain the fund's international purchasing power. According to the present guidelines (issued by the regulation of 10 May 1996) the assets are to be invested mainly in low risk bonds, with a currency distribution matching Norway's import weights.

The first allocation to the Petroleum Fund was made in 1996. At the end of 1996 the fund's capital amounted to 46 billion kroner. Estimates show a net allocation in the fund of about 57 billion kroner in 1997. Forecasts indicate the capital in the fund to be an estimated 425 billion kroner at the end of 2001.

The press releases are available on the Internet at: linkdoc099005-990101#dochttp://odin.dep.no/html/english/press.html