the petroleum sector to record - high levels. the level of investment in this sector in 2014 was as high as total investment in domestic non - oil industries. the positive spillovers to the oil service industry and other business sectors have been substantial, in particular through the past decade. norwegian employment has remained high and unemployment low, even when the financial crisis hit in 2008. it is estimated that 1 out of 9 jobs in norway are linked to the oil industry. bis central bankers ’ speeches fiscal rule it was established at an early stage that norway ’ s oil and gas resources belong to the norwegian people. the tax system for the petroleum industry was designed to make sure that the bulk of the large revenues, the economic rent from the petroleum sector, would accrue to the state. petroleum companies pay a surtax of 51 percent of profits, on top of the normal corporate tax rate of 27 percent. the government also has direct ownership shares in the most profitable oil fields. however, policymakers ’ handling of norway ’ s newly discovered petroleum wealth got off to a rather bumpy start. during the first 25 years of oil production, norway experienced two deep recessions. both downturns were rooted in hugely optimistic income expectations. in the 1970s, the public sector was the big spender, and the government had to tighten policy later on. in the 1980s, a credit - fuelled consumption boom in the private sector led to necessary cut - backs after the oil price plunge in 1986. these two episodes of turbulence made clear how vulnerable a small open economy is to terms of trade disturbances, as well as to short - termism and exuberant expectations. to prevent the same mistakes from being made again, fiscal institutions were set up in the 1990s. among the most important of these are the oil fund and the fiscal rule. chart : the fund mechanism the norwegian parliament passed the act relating to the oil fund in 1990. under the act, the net fiscal surplus, including oil revenues, is transferred to the fund, and invested in international markets. a main purpose of the fund mechanism is to make the actual spending of oil revenues transparent. towards the end of the 1990s, inflows to the oil fund increased, and there were expectations of considerable petroleum revenues in the future. there was increasing political pressure to spend more. in a climate of high inflows and even higher expectations, it was demanding to restrain fiscal spending. at the same time, it was clear that future pension obligations would be substantial

returns are likely to be lower. the starting point for calculating the expected rate of return on the portfolio is the real interest rate on high - grade government bonds. in recent years, bond yields in real terms have been close to zero. low bond yields reflect global economic conditions : governments, businesses and households are seeking to save more, while demand for safe investments has increased. substantial asset purchases by central banks are pushing in the same direction. low yields may also reflect modest expectations of economic growth further ahead. historically, equities have yielded higher returns than bonds. we also expect that to be the case ahead. still, it is doubtful that equity prices will continue to rise at the same pace as in recent years. weak or moderate growth in the real economy will feed through to the return on equities. the share allocated to real assets has increased gradually after equities were first introduced in 1998. soon, almost two - thirds of the fund will be invested in real assets. as we gain experience in real estate investing, it may be natural to invest in other types of real assets, or increase the equity allocation further. in the long run, a bond allocation of 20 – 25 percent should suffice to maintain the fund ’ s needed hedge against fluctuations in equity prices and execute the rebalancing strategy. chart : global investments another of the fund ’ s characteristics, which in particular has an effect on risk management, is its large size. a main tool to manage the risk faced by the fund is diversification. with a fund of this size, we have ample opportunities to diversify. stocks in different companies in a variety of sectors, loans to governments and corporations, and real estate investments in a number of global cities are all parts of the portfolio. at the end of 2014, the fund had investments in securities from almost 10 000 issuers in 75 countries. the fund is a global investor. prices in financial markets carry information about the risk and return prospects of different assets, and the markets are fairly efficient most of the time. hence, a natural starting point for the allocation across regions is the size of the different financial markets. however, the weights assigned by the fund to different geographical regions are the result of a trade - off between various considerations. the fund is a minority shareholder and dependent on good corporate governance and protection of our rights in legal systems. regulatory conditions in investee countries must be relatively stable, and we must be reasonably sure that our investments are safe. from