is strictly commercial : to maximise returns within the guidelines defined by the government. all investment decisions are made by norges bank investment management, a separate division within the central bank. neither norges bank ’ s executive board nor the ministry of finance is involved in any individual investment decisions. this governance structure was set up to ensure that the fund was not used as an instrument of foreign policy. the purpose of the fund is to ensure that future generations receive their fair share of norway ’ s petroleum wealth. to achieve this, the fund was designed to be invested for the long term. size and a long investment horizon are the fund ’ s two key characteristics. together, they form the backbone of the fund ’ s investment strategy : • first, the fund ’ s long investment horizon implies substantial risk - taking capacity. we are able to act as a countercyclical investor. • second, the fund ’ s size makes it possible to take advantage of investment opportunities worldwide, in a number of asset classes. • thirdly, a fund owned by the government must be highly transparent, not only to the norwegian public but also in an international context. let me elaborate on these aspects. in the early summer of 2007, the fund ’ s strategic equity share was raised from 40 to 60 percent. from summer 2007 to 2009, the fund bought equities worth usd 180 billion in international markets, equivalent to 0. 5 percent of all globally listed equities. the largest volume of transactions was carried out in the midst of the financial crisis of 2008 and 2009. the long - term horizon also enables us to invest countercyclically, by rebalancing asset classes : if the equity share increases by more than 4 percentage points from the target weight of 60 percent, we will sell equities and buy bonds. conversely, if the equity share drops below 56 percent, we will sell bonds and buy equities. the capacity to withstand market turmoil was demonstrated during the financial crisis in 2008 and 2009. for a period of 18 months, the fund ’ s losses totalled roughly usd 120 billion – more than 25 percent of norway ’ s gdp. the losses did not go unnoticed. they led to lively public debate on the fund ’ s investment strategy. however, the conclusion drawn was that the strategy was robust, and the government remained committed to it. 10 norway would have to accept that the fund ’ s capital would fluctuate, sometimes dramatically, given the high equity share. indeed,

guidelines were clarified in 2001, and rules governing the interaction between norway ’ s petroleum wealth and fiscal policy were established. these rules state : chart : the government pension fund global and the fiscal rule for more information about the norwegian petroleum sector, see “ facts 2012 : the norwegian petroleum sector ”, ministry of petroleum and energy, http : / / www. regjeringen. no / en / dep / oed / documents - andpublications / reports / 2012 / facts - 2012 - the - norwegian - petroleum - secto. html? id = 714606. using a factor - augmented vector autoregressive ( favar ) model that allows them to distinguish between different groups of countries, aastveit et. al ( 2012 ) find that demand from emerging economies ( most notably from asian countries ) is more than twice as important as demand from developed countries in accounting for the fluctuations in the real price of oil and in oil production. see aastveit, knut are, hilde c. bjørnland and leif anders thorsrud ( 2012 ) : “ what drives oil prices? emerging versus developed economies ”, norges bank working paper 2012 / 11 http : / / www. norges - bank. no / no / om / publisert / publikasjoner / working - papers / 2012 / 11 /. frankel, jeffrey a. ( 2011 ), “ how can commodity producers make fiscal and monetary policy less procyclical? ” in beyond the curse : policies to harness the power of natural resources, ed. by rabah arezki, thorvaldur gylfason and amadou sy, international monetary fund. bis central bankers ’ speeches • all government revenues from the oil sector must be transferred to the fund. • government spending, on average over the cycle, must be limited to the expected real return on the fund – estimated at 4 percent. this is known as the fiscal rule. the aim is to spend only the return generated by the fund ’ s investments, not the capital itself. • all of the fund ’ s capital is invested abroad. chart : projected size of the oil fund at the time the fund was established, norway was in the midst of a deep recession, and many doubted that any petroleum revenues would ever be saved. however, after a few years, the government ’ s cash flow from the petroleum sector started to increase sharply. the savings plan has since