A sound and responsible management of the Government Pension Fund

"The Government is today presenting a report to Parliament (Storting) on the management of the Government Pension Fund in 2013. - The Fund has served us well and it gives important contributions to the financing of our welfare state", says Minister of Finance Siv Jensen.

Good results depend on a sound and well-anchored strategy
2013 was among the Fund's best years. The return of the Government Pension Fund Global (GPFG) was 15.9 per cent and the return of the Government Pension Fund Norway (GPFN) was 15.7 per cent, before deduction of management costs of 0.07 percent and 0.09 percent respectively. The good results reflect strong equity market performance during 2013.

At the end of 2013, the total value of the Government Pension Fund was 5 206 billion kroner, an increase of 1 245 billion kroner since the beginning of the year The accumulated return of the GPFG since inception was 1 799 billion kroner at yearend 2013. Thus, one third of the Fund's value is the result of returns on its investments.

The fiscal policy guideline states that the spending of petroleum income over time shall be in line with the expected real return on the GPFG, which is estimated at 4 per cent. The realised annual real return is 3.9 percent, which is close to the estimated long term real rate of return considering normal short-term fluctuations in average returns.

We believe that sticking to our well-established investment beliefs and principles over time is the best way to pursue the goal of highest possible return matching the risk we are prepared to take. – The ability to stay firmly on course through challenging environments and market turmoil, and to base any change in strategy on thorough and well-founded financial assessments is important for the management of the Fund, says the finance minister.

Developing the strategy further
The government today presents plans to further develop the strategy of the Government Pension Fund. – Whilst we build on the established framework that has served us well, we take new steps to adapt the strategy to further growth, says the finance minister.

Openness and ethical awareness are key features of the Fund. - In the Report we present plans to strengthen the strategy for responsible investments, says finance minister Siv Jensen. Based on the recommendations from the 2013 Strategy Council and advice received through the public concultation process, we plan to reorganise the work. We will integrate the current ethical exclusion criteria in the management mandate to Norges Bank. Openness about ethical exclusions of companies will still be a key feature in the management of the Fund. The Ministry will appoint a new group of experts which shall assess Norges Bank's work in this particular area.

- I think the changes will give better results and a more efficient and consistent use of available resources. At the same we take steps to strengthen the legitimacy of the ethical side to the management, says finance minister.

Following up on the Government's policy declaration (the Sundvolden-platform), the report presents plans for the near doubling of the environmental mandates, increasing the Fund's investments in renewable energy. The set allocation to environmental mandates will increase from the current 20 - 30 billion kroner to 30 - 50 billion kroner. In addition, Norges Bank shall report separately on the Fund's investments in emerging markets and renewable energy. At the end of 2013, the Fund had a total of more than 500 billion kroner invested in emerging markets, and about 180 billion kroner in companies that are classified as environmentally friendly.

In this year's report, the Ministry also presents broad evaluations of Norges Bank's management of GPFG. The Ministry has received reports both regarding the Fund's historical performance and on whether and how continued delegation may improve the ratio between risk and return. Norges Bank and a group of internationally recognised experts have provided analyses and advice. The Government has at this point no plans to change the limits for benchmark deviations, i.e. the tracking error limit, but will return to this question and the advice presented in this year's report, in spring 2015.

The report also discusses the risk and return of oil and gas stocks. The Ministry presents no plans to change the Fund's benchmark index. The most important measure to reduce the state's oil and gas price risk is the transfer of off-shore oil and gas wealth to well diversified, financial investments globally. Investing current revenues from oil and gas in the Fund and limiting Fund transfers in line with the fiscal policy guideline, reduces Norway's exposure to oil price risk.

The GPFG and climate change
Research and development has long been an integral part of the strategy for responsible investments in the Fund. In today's report the Ministry announces that it will initiate work to further assess the risk from climate change on the Fund's future performance.

In line with a parliamentary decision in March this year, the Ministry has also established an expert group to consider whether the exclusion of coal and petroleum companies now appears to be a more effective strategy than ownership and the exertion of influence to address climate change.

 

Read more:

• Report No. 19 to the Storting
  Preliminary and unofficial translation of chapters 1 and 2.