Egil Matsen: Management and risk Speech by Mr Egil Matsen, Deputy Governor of Norges Bank (Central Bank of Norway), at Norges Bank, Oslo, 29 November 2018. * * * Accompanying charts of the speech. Introduction At the beginning of 2018, the Government Pension Fund Global (GPFG) had posted a positive return for six consecutive years. The average annual return was almost ten percent in this period. Global financial markets are currently experiencing a period of turbulence. This provides a good opportunity to revisit the risk profile of the GPFG and its management. Chart 1: Six percent annual return since 1998 The annual return on the GPFG has been six percent since 1998. As shown in Chart 1, there have been considerable variations in return from one year to the next, ranging from minus 23 percent to plus 26 percent measured in terms of the GPFG’s currency basket. Although our experience since 1998 is important, a complete picture of the level of risk of a fund that invests for future generations cannot be formed after as short a period as 20 years. This November marks the 100th anniversary of the end of the First World War. The world’s population was then about 1.7 billion. Now there are more than 7.5 billion people in the world, while GDP per capita has increased more than fivefold over the past 100 years. Chart 2: US moves up, Europe falls back Global production patterns, and hence the composition of stock markets, have changed just as dramatically.

The Islamic Financial Services Board or IFSB, established in 2002 as an international prudential standard setting body for Islamic finance, now has a membership of 50 regulatory authorities. It has developed prudential standards ranging from capital adequacy requirements to standards for governance and risk management. There has also been the development of degree programmes and professional qualifications in Islamic finance that are now being offered by major institutions of higher learning and training organisations from around the world. More recently, conscious efforts to initiate platforms for greater engagement among practitioners, scholars and regulators have brought about greater convergence and standardisation of Shariah interpretations and thus enhancing the potential for product harmonisation which has in turn supported greater cross border transactions in Islamic finance. BIS Review 95/2010  1  Challenges faced by the Islamic financial industry During this same decade, despite enjoying rapid growth, Islamic finance has also experienced its most challenging period. Today we face an environment of financial uncertainties and economic turmoil. The global economy and international financial system has been shaken by a series of unprecedented financial meltdowns in the international environment. Much has been said and documented about the financial mess that the crisis has created. Unprecedented policy responses were initiated to stabilise conditions. Now, significant steps are being taken by the international community to reform and strengthen the international financial system. The aim is to build the foundations for a stronger international financial system and global economy that is built on the premise of sustainable growth and a greater shared prosperity.