What Is the Government Pension Fund of Norway (GPFN)?
Let me explain the Government Pension Fund of Norway directly: it's composed of two distinct Norwegian investment funds, each with its own purpose. The first one is the Government Pension Fund Global (GPFG), which you might know as the Oil Fund. I established this in 1990 to handle the surplus revenues from Norway's petroleum sector, and it has grown into the world's largest sovereign wealth fund. It invests in equities, real estate, and fixed-income assets globally.
The second fund is the Government Pension Fund of Norway (GPFN) itself. This one dates back to 1967 and acts as a national insurance fund. It's smaller than the Oil Fund and is managed separately, with investments restricted to domestic and Scandinavian assets. Because of this focus, it holds significant shares in many key Norwegian companies through the Oslo Stock Exchange.
Key Takeaways
- The Government Pension Fund of Norway consists of two separate funds: the Government Pension Fund Global (GPFG), or Oil Fund, and the Government Pension Fund of Norway (GPFN).
- Management of the Government Pension Fund falls under the Ministry of Finance.
- The primary objective is to enable government savings to cover the increasing expenses of the public pension program.
Understanding the Government Pension Fund of Norway (GPFN)
You should know that the Government Pension Fund of Norway operates under the oversight of the Ministry of Finance, as defined by parliamentary acts and supplementary guidelines. The global fund is handled by Norges Bank Investment Management (NBIM), a division of the Norwegian Central Bank, on behalf of the ministry. Since 2004, an ethical council has defined investment parameters, allowing it to exclude companies involved in objectionable activities. The domestic fund is managed by Folketrygdfondet.
The fund's main goal is to build government savings to address the growing costs of the public pension system. It also aims to support long-term planning for how the government uses Norway's substantial petroleum revenues.
When it comes to investment strategy, the Ministry of Finance focuses on maximizing returns with moderate risk. This approach draws from long-term assessments of expected returns and risks, tailored to the fund's purpose, the manager's strengths, and how financial markets operate. We place significant emphasis on financial theory, research, and practical experience.
Here's something notable: the Government Pension Fund Global might soon divest from its oil and gas holdings. At the end of 2017, recommendations were made to remove over NOK 300 billion—about US $35 billion—in oil and gas assets from the equity benchmark to protect Norway from permanent drops in oil and gas prices. After reaching $1 trillion in 2017, such a divestment could impact global investments, especially given the energy sector's importance and the rising focus on Environmental, Social, and Governance (ESG) criteria. The Norwegian government finalized its decision on this in the fall of 2018.
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