value so far, my discussion of risk has focused on the fund ’ s expected return volatility from one year to the next. if returns are normally distributed, a standard deviation of 10 percent means, in slightly simplified terms, that the value of the fund, at its current size, will change by more than nok 700 billion in one out of every three years and by more than nok 1400 billion in one out of every twenty years. even these enormous amounts may underestimate actual risk. financial market returns do not follow a normal distribution. major financial crises occur more frequently and with greater severity than implied by a normal distribution. an example from the recent past is 2008, when the value of the fund ’ s strategic benchmark index for equities fell by almost 40 percent. with the fund ’ s current size and equity allocation, this would have resulted in a fall in the value of the equity portfolio of nok 1700 billion. this is equivalent to 65 percent of gdp for mainland norway. the financial crisis triggered a deep decline in equity markets, but was followed by a relatively rapid rebound. we cannot ignore the possibility that the return on the fund will be low for many years. in the 1970s, the real return on us government bonds was negative for five years in a row. in equity markets, a long period of high erps after the second world war was followed by a long period of low erps in the 1970s. a good understanding and broad - based acceptance of the risk of substantial falls in the fund ’ s value are, as mentioned, essential to be able to maintain the investment strategy. experience from the financial crisis suggests that the governance model for the fund is capable of coping with periods of large falls in value. we should, however, remember that the value of the fund in krone terms did not fall to any great extent during the financial crisis because of substantial transfers of petroleum revenues and a substantial depreciation of the krone. a future test of the governance model may prove more demanding. a future perspective on wealth an assessment of the fund ’ s equity share should not be exclusively based on an analysis of expected financial market return and risk. chart : the government ’ s petroleum wealth it may be useful to think of the government ’ s total petroleum wealth as the sum of the fund and the estimated value of the remaining oil and gas reserves. the chart shows how the composition 5 / 7 bis central bankers'speeches of this wealth has changed over time. ten

next ten years. as the gpfg is also invested in other bond markets, even this modest expectation is slightly higher than the yield on inflation - linked bonds in the largest markets. the prospect of low returns on bond investments is undoubtedly one of the reasons for the renewed discussion of the fund ’ s equity allocation. however, whether low bond returns warrant a change in the size of the equity share of the benchmark index depends on the return that can be achieved on alternative investments – namely the expected return on equities. the relevant factor for the composition of the fund ’ s benchmark portfolio is the spread between the expected return on equities and the expected return on bonds. chart : realised real yields on equity and fixed income the excess return that can be achieved in equity markets is usually measured in terms of the socalled equity risk premium ( erp ). this is defined as the spread between the return on equities and the return on short - term government securities. historically, the realised erp has been high. since 1900, the world ’ s equity markets have yielded a total return 120 times higher than the return on short - term government securities, bringing the average erp to 5. 7 percentage points per year. 2 ] if we look at the period from 1970 to 2015, for which we have more complete data, the erp is even higher. this cannot be explained by company fundamentals such as growth in earnings and dividends in this period, suggesting that market valuation of company profits has changed since 1970. adjusting for the effect of this re - pricing, the long - term average erp falls to just below 4 percentage points. chart : equity risk premium from different model specifications as we know, past performance is no guarantee of future results. in addition to using historical excess returns, the erp can also be estimated using more forward - looking models. the most common approach is to estimate the erp on the basis of current market prices and expected future dividends. we have analysed several different models of this type. on average, these models estimate an expected erp of just below 6 percentage points. in all the models, the estimate is higher than it was ten years ago. the chart shows that model - based estimates of the erp are uncertain and can change quickly. the estimates are particularly sensitive to assumptions for dividend growth and the risk - free rate. growth in firms ’ dividends has been particularly strong in the years since the financial crisis