Government Pension Fund: Long-term management in turbulent times

“The financial crisis has meant that the return on the Government Pension Fund’s investments in 2008 was very poor. However, we have a robust and long-term investment strategy that we have chosen because it will serve us well over time,” says the Norwegian Minister of Finance Ms Kristin Halvorsen.

“Today, the Government presented its Report to the Storting on the management of the Government Pension Fund in 2008. It is important that the Storting and the public is given insight into the management of our common savings, which also acts as a good basis for discussing the overarching strategy for the years to come,” says Minister of Finance Kristin Halvorsen.

The total market value of the Government Pension Fund rose in 2008 by NOK 227 billion to NOK 2.363 billion. This increase is due to the injection of petroleum revenues of NOK 384 billion, and the fact that the depreciation of the Norwegian krone increased the krone value of the Fund’s overseas assets by NOK 506 billion. At the same time, the very poor returns on the Fund’s investments reduced the value of the Fund by NOK 663 billion.

The global financial crisis has been felt in the management of the Government Pension Fund. The investments of the Government Pension Fund had a negative return in 2008 of -23.3 per cent for the Global part of the Fund (measured in foreign currency) and
-25.1 per cent for the domestic part of the Fund (measured in kroner).

“The Government Pension Fund is the largest fund in Europe, and has a very long-term investment strategy. We are not short-term speculators that have to realize losses in the short term,” says Minister of Finance Kristin Halvorsen.

The equity portion of the Government Pension Fund – Global has risen to 50 per cent, in keeping with the decision in 2007 to gradually increase it from 40 per cent to 60 per cent. Of all the shares the Fund now owns, 40 per cent were purchased last year – and at much lower prices than in 2007. This has resulted in the Fund’s average ownership stake in the world’s stock markets increasing from ½ per cent to ¾ per cent. The right to a larger portion of the future profits from listed companies all over the world means that the Fund has in fact strengthened its long-term ability to help fund the welfare state. And the combination of high oil prices and falling equity markets means that it has never been more profitable in the history of the Fund to transfer value from oil to shares than it was in 2008.
 
“When assessing whether the risk associated with the Government Pension Fund’s investment strategy is appropriate, it is important to remember the main role of the Fund as a device to strengthen the Norwegian economy and reduce our overall risk. We are reducing our dependence on oil and gas over time by building a better society founded on a healthy, stable real economy, at the same time as we are gradually investing the surplus in financial investments with a high degree of risk diversification,” says Minister of Finance Kristin Halvorsen.

The fact that financial investments are valued from day to day does not mean that they entail a larger risk than investments that are valued less frequently. The Fund’s risk cannot be summarised in a single figure. A fund with a large risk-bearing capacity and eternity as its time perspective ought not to have minimising annual fluctuations in the return as its goal.

Market developments in 2008 have been extremely unusual, but no new information exists to suggest that the investment strategy ought to be amended.

 

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Press releases:

• Government Pension Fund: Long-term management in turbulent times
• The Government will strengthen Norges Bank’s management and control system
• Government Pension Fund: Broad review of Norges Bank’s active management
• Government Pension Fund: Developing and strengthening the ethical guidelines
• Government Pension Fund: Climate on the agenda

Report no. 20 to the Storting