There is a broad political consensus that the Pension Fund should be managed with a view to achieving the maximum possible return within a moderate level of risk. The
Ministry of Finance has formulated a long-term investment strategy ensuring that the
capital is invested in a broadly based portfolio comprising securities from many
countries. The long investment horizon of the Fund means that the portions invested
in various asset classes and geographical regions can be determined on the basis of
assessments of expected long-term returns and risks.
The investment strategy chosen by the Ministry of Finance has decisive influence on
the Pension Fund’s expected return and risk, and reflects a trade-off between these
two characteristics. The Pension Fund shall act as a financial investor, and not as a
tool for exercising strategic ownership in individual companies. The Fund is
characterised by good diversification of risk, as a result of it being invested in
securities issued by many different states and by companies in many different
countries. There is no requirement to the effect that the capital of the Pension Fund
shall at all times correspond to a certain share of the pension liabilities of the State
under the National Insurance Scheme. This makes the Pension Fund less vulnerable to short-term return fluctuations than many other funds.
Priority is accorded to achieving broad political agreement as to the investment
strategy of the Fund, and a high degree of openness as far as the management of its capital is concerned. This strengthens the credibility of, and confidence in, the Fund.
The investment strategy of the Government Pension Fund is defined by the general
investment limits and the benchmark portfolios of the Government Pension Fund –
Global and the Government Pension Fund – Norway, respectively. The benchmark
portfolios of the Government Pension Fund comprise equity and bond indices from
different countries, cf. Chart below. The indices include representative security samples, and developments in such indices reflect, in large part, market developments in the relevant countries. The return on the Government Pension Fund will, to a large extent, mirror market developments for the securities included in the benchmark portfolios.
Strategic benchmark portfolio of the Government Pension Fund
The Ministry of Finance has defined the benchmark portfolio of the Government
Pension Fund – Global. It has been decided to increase the equity portion to 60
pct., and the equity portion is now being gradually increased. As from 1 January
2008 it is intended that the investment limits of the Government Pension Fund –
Norway will also be determined by the Ministry of Finance, in the form of a
benchmark portfolio with limits on permitted deviations.
The Government Pension Fund is mainly invested in listed equities and bonds of high credit quality. Equity investments represent ownership interests in the production of goods and services, and the value of such investments will therefore reflect, inter alia, expectations as to the future profits of businesses. Bond investments involve the granting of a loan to the issuer, to be repaid to the bondholder together with a predetermined interest payment.
As shown in the Chart above, the Government Pension Fund – Global holds all its
investments abroad, and its return in international currency is the relevant measure of developments in the Fund’s international purchasing power. The Government Pension Fund – Norway is primarily invested domestically, and its return is measured in Norwegian kroner. Norges Bank and Folketrygdfondet (also known as the National
Insurance Scheme Fund) both seek to achieve a higher return than dictated by the
benchmark portfolios of the Government Pension Fund – Global and the Government
Pension Fund – Norway, respectively, within the defined risk limits.
