## IMF Survey: Norway's Oil Fund Shows the Way for Wealth Funds

_IMF News, July 9, 2008_

## Source details

**Canonical URL:** [IMF Survey: Norway's Oil Fund Shows the Way for Wealth Funds](https://www.imf.org/en/news/articles/2015/09/28/04/53/sopol070908a)

## Other formats

- [Markdown version](/en/news/articles/2015/09/28/04/53/sopol070908a/index.md)
- [Structured JSON version](/en/news/articles/2015/09/28/04/53/sopol070908a/index.json)
- [Bundle manifest](/en/news/articles/2015/09/28/04/53/sopol070908a/bundle-manifest.json)

## Bibliographic details
- Authors: Delia Velculescu IMF European Department July
- Published: July 9, 2008

---

### Overview
- The Norwegian Oil Fund, recently renamed "the Government Pension Fund-Global" (GPF), is cited as an exemplary sovereign wealth fund (SWF).
- SWFs' total assets are currently estimated at about $3 trillion.
- Experts expect SWF assets to increase rapidly to over $10 trillion in the next 5-10 years.

### SWF trends, benefits, and risks
- Potential stabilizing features:
  - Long horizons, lack of leverage, and absence of claims for imminent withdrawal of funds could help stabilize international financial markets by enhancing market liquidity and dampening asset price volatility.
- Potential risks:
  - Sheer size, rapid growth, and the potential to abruptly change investment strategies.
  - Lack of transparency and uncertainty surrounding investment purpose could exacerbate market uncertainty and increase volatility.
- Growing importance and active investment strategies are expected to affect the structure of international financial markets and asset pricing.

### Voluntary code of conduct and IMF role
- The IMF has been given a new mandate to facilitate development of a set of voluntary principles for SWFs covering public governance, transparency, and accountability.
- An International Working Group of SWFs (IWG) was formed at end-April 2008 to begin work on the principles.
- Objectives for the principles:
  - Help countries hosting SWFs strengthen domestic policy frameworks and institutions.
  - Facilitate macroeconomic and financial interests of those countries.
  - Ease concerns in countries receiving SWF investments and promote an open global monetary and financial system.

### Lessons from Norway's Government Pension Fund-Global (GPF)
- Size and scale:
  - Total assets amounting to $373 billion at end-2007, or close to 100 percent of Norway's GDP.
- Stated aim and fiscal role:
  - The GPF's stated aim is to support government saving and promote an intergenerational transfer of resources; it facilitates long-term management of the government's petroleum revenues and pre-funds public pension expenditures given expected population aging.
  - Functions as a fiscal policy tool: the fund's capital consists of revenues from petroleum activities and its expenditure is a transfer to the fiscal budget to finance the non-oil budget deficit.
  - The fiscal guideline, introduced in 2001, calls for a limit on the non-oil structural central government deficit of around 4 percent of the assets of the GPF; since 4 percent is the estimated long-run real rate of return, this rule amounts to saving the real capital of the fund and spending only its return.
- Budget integration and transparency:
  - The fund is fully integrated into the budget; the net allocation to the fund forms part of an integrated budgetary process that makes transparent the actual surplus of the fiscal budget and the state's use of petroleum revenues.
  - The Ministry of Finance reports regularly on governance framework, goals, investment strategy and results, and ethical guidelines; the Central Bank publishes quarterly and annual reports including performance and an annual listing of all investments; detailed information on voting in shareholders' meetings is also published.
- Investment and diversification strategy:
  - Assets are invested exclusively abroad to ensure risk diversification and good financial returns and to shield the non-oil economy from oil-sector shocks (so-called "Dutch disease" effects).
  - The GPF has small ownership shares in over 7,000 individual companies worldwide; the average ownership stake at end-2007 was 0.6 percent, against a maximum allowed of 5 percent.
  - Currently adjusting portfolio to a new strategic benchmark of 60 percent of assets in equities and 40 percent in fixed income; plans to move gradually into real estate to improve the risk-return tradeoff.
  - The investment strategy has produced a healthy 4.3 percent average annual real return during the past decade.
- Ethical governance:
  - Asset management is governed by a set of ethical guidelines established by the Ministry of Finance, based on UN and OECD principles.
  - Two policy instruments to promote ethical commitments: exercising ownership rights to promote responsible conduct and avoiding investments in companies whose practices constitute an unacceptable risk of complicity in grossly unethical activities.

### Norway's potential contribution to SWF principles and policy implications
- The GPF's role as a fiscal policy tool could guide other countries with nonrenewable resources in managing policies sustainably over the long run.
- The fund's highly transparent, competitive, and successful asset management strategy provides an example that open strategies can produce financial results, enhance market liquidity and financial resource allocation, and act as a stabilizing influence.
- Experience with ethical guidelines demonstrates that commitment to the common good is not necessarily antagonistic to high returns.
- Norwegian authorities support IMF work on SWFs and back equal treatment of investors; they do not believe SWF investment activities need to be more restricted than those of other investors and caution that restricting investments of oil-related SWFs may reduce extraction, with potential destabilizing effects on oil markets.

*Source: IMF Survey — Norway's Oil Fund Shows the Way for Wealth Funds; Delia Velculescu; IMF European Department; July 9, 2008.*

---

## Content in this bundle

- [022908pdf (PDF)](/-/media/websites/imf/imported/external/np/pp/eng/2008/_022908pdf.pdf){rel="external" type="application/pdf"}
- [Annex12pdf (PDF)](/-/media/websites/imf/imported/external/pubs/ft/gfsr/2007/02/pdf/_annex12pdf.pdf){rel="external" type="application/pdf"}

---

## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Policy](https://www.imf.org/en/news/search)
- [IMF Board on wealth funds](https://www.imf.org/external/pubs/ft/survey/so/2008/NEW032108A.htm)
- [IMF intensifies SWF work](https://www.imf.org/external/pubs/ft/survey/so/2008/POL03408A.htm)
- [Rise of sovereign funds](https://www.imf.org/external/pubs/ft/fandd/2007/09/straight.htm)
- [Commodity price moves](https://www.imf.org/external/pubs/ft/survey/so/2008/RES032008A.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sopol070908a_