Norway's wealth fund answers to voters.

AuthorBergo, Jarle
PositionFinance - Viewpoint essay

Norway has a sovereign wealth fund that is often held up as a model of transparency both to the country's citizens and to the outside world where it makes investments. It is financed with surplus wealth produced by Norway's income from its production of petroleum. Even if the name was recently changed from "petroleum fund" to "pension fund," the fund has no responsibilities for paying pensions.

Its purpose is to invest, with a view to maximize profits, the large revenue to the state generated by the Norwegian petroleum sector. The fund was established by law in 1990 as a tool to support prudent management of petroleum revenues. It has the twofold purpose of smoothing out the spending of volatile oil revenues and at the same time acting as a long-term savings vehicle to benefit future generations. Of course, oil prices have risen dramatically since then, so the fund's size and outlook has changed. But the main principles guiding its operations have stayed the same.

Its workings were explained in a talk at The European Institute--part of a seminar on the "Growing Role of Sovereign Funds in Global Capital Markets" held on April 10, 2008. Below is Mr. Bergo's presentation.

Today, I am slightly in the position of a man wearing two hats. Until recently, I was an official of the Central Bank of Norway, which is the manager of the Norwegian Sovereign Wealth Fund. Last week I took up a position at the International Monetary Fund, and the IMF has been charged with developing a set of best practices and guidelines for sovereign wealth funds. I will confine myself to explaining the Norwegian model, drawing on presentations that I and colleagues at the Ministry of Finance have made recently. I will not touch on possible future IMF guidelines or best practices.

The Norwegian sovereign wealth fund used to be called the "Government Petroleum Fund," but now it is named the "Government Pension Fund--Global." The only thing that has changed is the name: there has been no change in its objectives or in the way the fund is run. There is no direct link to the payment of pensions and the fund has no explicit liability side. It is a large fund--close to U.S. $400 billion, which corresponds to 100 percent of Norwegian GDP. It is expected to grow substantially, perhaps to as much as 200 or 300 percent of GDP.

An early question for us was: How do you persuade the electorate in a democratic, open society like Norway to agree to save such a large proportion of GDP in a...

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