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Government Pension Fund – Global London, May 2008 Martin Skancke Director General Asset Management Department 1 Norwegian Ministry of Finance The petroleum sector in relation to the Norwegian economy 25 % 38 % The petroleum sector’s The petroleum sector’s share of GDP share of state revenues Source: Statistics Norway, Ministry of Finance 2 24 % 51 % The petroleum sector’s The petroleum sector’s share of total investments share of total exports Norwegian Ministry of Finance The Fund mechanism – integrated with fiscal policy Revenues Return on fund investments Petroleum revenues Fund Transfer to finance non-oil budget deficit Fiscal policy guideline (over time spend real return of the fund, estimated at 4%) 3 State Budget Expenditures Norwegian Ministry of Finance Norway’s fund: Function • The Norwegian fund USD 375bn and growing: a tool for long-term wealth management short and medium term stabilization 4 Integrated with fiscal budget Invested only abroad Transparency Norwegian Ministry of Finance Pension Fund - Global Governance Structure Founded on Act, regulations and separate contracts Legislator Pension Fund Act Principal Performance reports and strategic changes reported in National Budgets and National Accounts Ministry of Finance Regulations Manager Management agreement Central Bank (NBIM) 5 Office of the Auditor General Norwegian Parliament Advisory / consultancy agreement Advisors Performance reports Norges Bank Audit Norwegian Ministry of Finance Norway’s fund: Key features 6 Aim: Maximize financial returns Financial investor with non-strategic holdings. Separation of roles between owner and operational manager High degree of transparency Ethical guidelines that are transparent and predictable, based on internationally recognized standards Norwegian Ministry of Finance The value of SWFs 7 • Free capital movements Allow capital exporters to decouple consumption and current revenues improve risk/return ratio on savings Allow capital importers to decouple investments and domestic savings improve productivity through productive investments • SWFs may contribute to increased stability in financial markets Long time-horizon No liabilities Little or no need for liquidity in the short term