Mandate for the review of active management of GPFG

The purpose of the report is to explore to what extent and how active management may improve the trade-off between expected return and risk in the GPFG. Active management should here be understood as the deviations between the actual GPFG portfolio and the benchmark index as provided by the Ministry of Finance.  

The report should take as a starting point the current strategy for GPFG which has been developed gradually over time. Reference is made to Report to the Storting on the Management of the Government Pension Fund in 2012 (Meld. St. 27 (2012-2013)) and the summary in Section 1 above. A review of i.a. the choice of benchmark indices for listed equities and bonds is not within the scope of the report.

The report should include:

i)        Review of Norges Bank’s historical performance in the management of the GPFG, including :

• Analyses of the Fund and the equity and fixed income portfolio’s return and risk relative to the benchmark, with emphasis on the last five years
• Breakdown of performance by main strategies/activities, within the limits of available data
• Analyses of risk-adjusted performance, including a discussion of choice of methodology for risk adjustment and choice of relevant risk factors   

ii)      Review of how delegation to Norges Bank can improve GPFG’s expected return and risk relative to the current strategic benchmark. The review should cover investment opportunities both within and outside of GPFG’s current investment universe and include:

• Theoretical and empirical foundation
• Return and risk characteristics and investment capacity (scalability)
• GPFG’s comparative advantages or disadvantages based on GPFG’s special characteristics
• Comparable investors use of strategies to exploit these investment opportunities
  
  

iii)    Based on the analysis in i) and ii), discuss potential implications for the Ministry’s mandate to Norges Bank. This part of the report should include a discussion of benchmarking, relevant risk measures and risk budgets, reporting requirements and how other funds have implemented comparable strategies.