The Government Pension Fund of Norway, also known as the Government Pension Fund Global, or even simply the Oil Fund, is the largest sovereign wealth fund in the world, boasting roughly $1.5 trillion in assets.
Before delving deeper into the fund, it is perhaps worth talking about sovereign wealth funds in general. An interesting topic in themselves, the remit of SWFs is simple: save and reinvest national budgetary surpluses. Unsurprisingly, this type of financial safeguarding is typically performed by nations sitting on vast natural resources, such as oil and gas in Norway’s case. For countries heavily reliant on commodity exports, a sovereign wealth fund serves as a moat to isolate their economies from geopolitical strife, price fluctuations and changes in market demand. Such a fund can also act as a war chest, to be opened only on the rainiest of days.
The state of Texas would be the first to implement such a scheme, designed to finance the education system in the 1850s. Its active management and contributions continue to this day. A century later, Kuwait would be the first sovereign country to embark on the same venture, thanks to the massive oil revenues it benefited from. Although it doesn’t consider itself to be one, a case can be made to describe the French “Caisse des Dépôts et Consignations”, created in 1816, as the oldest sovereign wealth fund. Both the aforementioned funds have grown to staggering heights. In the early 2000s, sovereign wealth funds would take off in earnest, with countries around the world seeking to shore up their finances for the future.
Sadly, such practices often fly in the face of modern financial dogma, which stipulate spending every penny the second it becomes available. Why save for the future when there are pockets to line and vanity projects to finance? Unfortunately, it is all too common for such funds to be plundered by less than forward-thinking governments. The funds of many South American nations have suffered such a fate.
Despite being state-owned, sovereign wealth funds have the freedom to invest in any asset they see fit, both locally and internationally. An SWF can purchase stocks, commodities, bonds and real estate anywhere in the world, leading to fears that these funds can grow too big and powerful. Not only are they large enough to move markets, a foreign fund may end up with a controlling share of strategically significant domestic industries, such as aeronautical and defence companies. This is perhaps the more tangible controversy presented by sovereign wealth funds: more than the potential risk posed to those the fund is designed to provide for, the danger lies in the power and influence such funds can project internationally.
Returning to the case of Norway, the Oljefondet was founded in 1990 with the explicit goal of investing part of the surplus generated by its petroleum sector. All too aware that Norway’s reserves would not last forever, a decision was made to diversify the nation’s economic options. Decades later, Norway’s oil exports and revenues have in fact increased dramatically. Despite this the state can only withdraw 3% of the fund’s value every year, and only did so for the first time in 2016.
The salient point about the Government Pension Fund of Norway is its sheer size. In terms of assets under management, it is larger than the main sovereign wealth fund of China, despite having a population 250 times smaller. This equates to almost $300k per citizen, hardly a negligible amount.
The second point to be made about the Oil Fund lies in its transparency. Every single investment the fund has ever made is publicly available information, dating back to its inception. The governance of the fund is equally transparent, with every decision made by the executive board open to scrutiny. The official website even has a live update page displaying the total value of the fund.
The third facet worth discussing returns to the point made previously about projecting influence. The fund makes no attempt to be coy about this, claiming in their own words that they own a small slice of most of the world’s largest companies and have the ability to influence how they operate. To date, this influence has been directed mostly towards environmental and ethical concerns. The fund will not invest in mining or power companies if a significant portion of their revenues are derived from coal products, nor companies responsible for severe environmental damage. Companies will likewise be excluded if they present an unacceptable risk of contributing to human rights violations, sell weapons to certain countries, engage in egregious financial activities, or produce cannabis or tobacco. Adding to this, the fund votes in thousands of general and shareholder meetings every year, steering many of the companies involved in the direction it sees fit.
Compared to the likes of Blackrock and other massive investment firms, the Oil Fund of Norway has no such fame or flair. Despite this, the fact remains that it has a stake in 9,000 companies across 70 countries and owns about 1.5% of the world’s listed companies. Most people have never heard of it.
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