Saturday, February 7, 2009

سال۱۳۸۵ یک میلیارد دلار در آمد نفتی به خزانه کشور واریز نشده است

How Norway manages its Sovereign Wealth Fund - the Norwegian Pension Fund with transparency

By Fang Zhi Yuan

Background

Norway, one of the world’s largest petroleum exporters, has invested its oil wealth in a fund with a current market value of more than $350 billion.
This fund known as “The Government Pension Fund” was established in 2006 and consists of two parts: “The Government Pension Fund - Global”, which is a continuation of the Petroleum Fund, and “The Government Pension Fund - Norway”, which was previously known as the National Insurance Scheme Fund.
The purpose of the Government Pension Fund is to facilitate government savings necessary to meet the rapid rise in public pension expenditures in the coming years, and to support a long-term management of petroleum revenues.


Who owns it

The Norwegian Ministry of Finance is responsible for the management of the Government Pension Fund. The operational management of the Pension Fund - Global is carried out by Norges Bank, which invests the fund’s capital in bonds and equities outside of Norway in accordance with guidelines issued by the Ministry. The operational management of the Pension Fund – Norway is carried out by Folketrygdfondet.

Provisions on the management of the Government Pension Fund
The Government Pension Fund Act was passed by the Norwegian Parliament in 2005 to regulate the management of the fund.
All aspects of the management of the fund are tightly scrutinized and regulated including the operational risk, reporting, and ethical guidelines.
The Fund shall be invested in accordance with the following asset allocation:

- Fixed income instruments 30 – 70%
- Equity instruments 30 – 70%

The composition of the strategic benchmark portfolio is set at 60 per cent fixed income and 40 per cent equities. A detailed annual report is to be prepared by the Norges bank which shall contain:

- Norges Bank’s strategic plan and the investment strategy for the Fund
- A list of all significant external service providers, including a complete list of external managers
- An account of the standards employed by Norges Bank for the purpose of valuation (accounts), measurement of return, along with management, measurement and control of identified risk factors (market risk, counterparty risk and operational risk)
Under the Fund’s strict ethical guidelines, it is barred from making investments that entail an unacceptable risk that Fund is contributing to unethical acts or emissions, serious violations of fundamental humanitarian principles, gross violations of human rights, gross corruption or severe environmental degradation.

Interestingly, under provision 3.2, the Fund may not be invested in fixed income securities issued by Myanmar which Singapore’s SWFs have a substantial business interest in.

The roles of the Ministry of Finance, the Norwegian banks and other stakeholders are also spelt out clearly.
Read the full provision here

Management model and organization

Norges Bank Investment Management (NBIM), a division of Norges Bank, is responsible for the management of the Global Pension Fund - Global.
The Executive Board has overriding responsibility for Norges Bank’s operations. It consists of seven members, all appointed by the King. The Supervisory Council, which consists of 15 members appointed by the Norwegian Parliament, is the Bank’s supervisory body and approves the bank’s budget.
The Supervisory Council organizes the auditing of Norges Bank which is to submit an audit report to the Supervisory Council on the Bank’s annual financial statements. It is also required to submit a quarterly report to the Ministry of Finance on the management of the fund.

The Office of the Auditor General is responsible for the final audit of the Government Pension Fund and it bases its work partly on materials from the Central Bank audit.

In 2006, the Executive Board set up an Advisory Board to support its work on investment management. The Advisory Board consists of four internationally recognized experts with extensive experience from large investment management institutions.


Transparent nature of the Norwegian Fund

What makes the Norwegian fund different from several other sovereign wealth funds is the amount of information it makes public about its strategy and investments.
Its performance and risk exposure are reported quarterly and its holdings in about 3,500 companies are detailed annually; in most cases, its investment in any company amounts to less than one percent of available shares.

The fund does not seek to control companies through buy-outs. In fact, by its own rules the fund restricts its ownership in any company it invests in to five percent of shares. The investment objectives are purely financial in nature, safeguarding assets for the long term.


Performance of the Fund

The fund returned 7.9 percent last year and has averaged 6.5 percent a year over the past decade. After accounting for inflation, costs and management fees, it has averaged an annual return of 4.6 percent since its inception, outpacing the 4.1 percent gain in a government-set benchmark.

The Norwegian Pension Fund – Global has a current market value of more than $350 billion (January, 2008), equaling about $75,000 for every Norwegian, investsted in markets all over the world. Close to one third of this is invested in the United States. Over time, the share invested in equities will increase to 60 percent, while 40 percent will be invested in fixed income.


Conclusion

As we can see from the example of the Norwegian Pension Fund which manages assets greater than both Temasek and GIC combined, it is possible to generate a commendable return on its investment while adopting good practices of transparency and accountability in the management of the fund.

Political leaders are not involved in the management of the funds which lie in the hands of professional fund managers. A system of check and balance is put in place to ensure the funds are not misused and investment decisions are made in accordance with the guidelines.

With the United States demanding greater transparency from SWFs, it is time that Temasek and GIC start emulating the fine example of the Norwegian Pension Fund and shed more light on its modus operandi.

Read more about the Norwegian Pension Fund here

http://wayangparty.com






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