Regulations relating to Management of the Government Bond Fund

The Ministry of Finance laid down regulations relating to Folketrygdfondet’s management of the Government Bond Fund today. The Fund has been established with a ceiling of NOK 50 billion.

– The aim is to contribute to an increased supply of capital and liquidity in the Norwegian corporate bond market. This is a continuously changing market, and this framework gives Folketrygdfondet the flexibility to adapt to the market’s changing needs. Risk limitation and market pricing considerations make it necessary to define certain minimum requirements for the investments, says Minister of Finance Kristin Halvorsen.

The guidelines for investments in the Government Bond Fund establish that the funds shall be invested in ordinary bond loans with issuers domiciled in Norway. The Ministry’s return expectations for these investments will be expressed through the specification of a reference index.

The funds shall be invested according to a specific investment sector distribution to ensure risk diversification: 25-65 per cent in banks and financial institutions and 35-75 per cent in other, non-financial enterprises, including industry. A maximum of 30 per cent of the fund’s assets can be invested in bonds issued by enterprises with a credit rating lower than so-called investment grade (i.e. lower than BBB- in accordance with Standard & Poor’s classification). A lower limit has also been specified: The funds cannot be invested in enterprises with a credit rating corresponding to CCC+ or lower. Both considerations for a responsible risk profile and operational considerations require such limitations. These limitations will nevertheless make it possible to invest the Bond Fund in a broad selection of companies.

To limit the risk associated with individual issuers, a maximum of 5 per cent of the Fund’s assets can be invested in an individual company. The Regulations do not stipulate any maximum limit for what percentage of new loans Folketrygdfondet can take, but Folketrygdfondet is required to have guidelines to this effect.

The Fund shall invest on market-based terms. In cases where more than 30 per cent of the volume of new borrowings or more than 50 per cent of the loan volumes in the secondary market are acquired, as well as transactions between the Government Pension Fund – Norway and the Bond Fund, special documentation requirements apply to ensure that the requirement of market-based pricing is met.