Øystein Olsen: Management of the Government Pension Fund Global
(GPFG)
Introductory statement by Mr Øystein Olsen, Governor of the Norges Bank (Central Bank of
Norway), before the Storting's Standing Committee on Finance and Economic Affairs, Oslo,
30 April 2013.
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Please note that the text below may differ from the actual presentation. Charts in pdf
I would like to thank the Chairman and thank you for giving Norges Bank the opportunity
again this year to report on the management of the Government Pension Fund Global
(GPFG).
Chart: Changing the regional allocation
The investment strategy of the GPFG builds on its specific features, purpose and our
perception of the functioning of financial markets. The GPFG is a large fund and features a
long investment horizon. The objective of investment management is to preserve the
longterm international purchasing power of the GPFG.
In 2012, the investment strategy was changed. As a result, investments in emerging markets
have increased. Just over 10 percent of the overall portfolio is now invested in these
markets.
Chart: Increasing investments in real assets
The allocation to equities was increased to 60 percent between 2007 and 2009. When the
allocation to real estate reaches 5 percent further ahead, the GPFG's allocation to real
assets will make up two-thirds of the overall portfolio. The long-term expected return on real
assets is higher than on nominal bonds. The risk is also higher, but the long-term investment
horizon puts us in a solid position to carry that risk.
The key to realising the higher return is to adhere to the strategy also in times of heightened
uncertainty, as we did through the financial crisis in 2008 and 2009. An official framework for
rebalancing back to a set allocation to equities has now been established. This will help
ensure that this strategy is carried out during the next period of high volatility in financial
markets.
Chart: Lower costs
Management costs for equities are higher than for fixed-income securities. The cost of
managing many small shareholdings is higher than managing a few large ones, as is the cost
of managing investments in emerging markets in relation to developed markets.
Overall management costs as a percentage of the GPFG have nonetheless fallen over time.
We have exploited its size to realise economies of scale. In the past few years, costs have
been reduced also in krone terms. This is partly due to reduced use of external managers.
Costs for external services, such as IT, custodian and settlement services, have also been
lowered.
Relative to the size of the GPFG, management costs are modest. Norges Bank continuously
seeks to achieve efficiency gains without impairing the quality of investment management. In
2012, management costs came to 0.05 percent of the GPFG.
Chart: Transparent and professional management
Norges Bank meets international and national transparency standards relating to investment
management. We have high ambitions with regard to transparency. Yet, we must weigh
different considerations. In the case of investments in individual companies, extensive
transparency can come into conflict with confidentiality requirements. In order to ensure
confidential communication with the governing bodies of the companies in which we have a
stake, both parties must be certain that the dialogue is indeed confidential.
In 2012, we expanded our collaboration with Norwegian academia. NBIM participated by
giving lectures on investment management at several universities and other academic
institutions.
Our programme, the Norwegian Finance Initiative, has helped support research in financial
economics at different levels. This initiative contributes to enhancing the quality of research
in financial economics among Norwegian academic institutions and to stimulating public
debate on the management of the GPFG. This framework for cooperation is also used within
Norges Bank, both in investment management and the development of strategy.
Thank you for your attention. I now give the floor to the Chief Executive Officer of NBIM,
Yngve Slyngstad.
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