The government pension fund of Norway (Statens pensjonsfond Utland, in Norwegian) has made the citizens of the Nordic country rich. In purity, it has been the exploitation of the deposits of the Petroleum. With the income obtained, the State created an investment vehicle 23 years ago. Today, it is the largest sovereign fund in the world. On Friday it surpassed for the first time the trillion euros of patrimony (10.11 trillion Norwegian crowns). Taking into account that only 5.3 million people live in the country, each one corresponds to about 200,000 euros.
This case of economic success may seem obvious. The country is the seventh world oil producer and the third largest natural gas. These exports represent a bicoca. The Potosí of the twentieth and twenty-first centuries. But the management of energy resources is not always so easy (ask Venezuelans), and Norwegians have managed to manage the income of black gold with great success.
One of those responsible for the success of the fund is Yngve Slyngstad, CEO of Norges Bank Investment Management (NBIM), the entity mandated by the Norwegian Ministry of Finance to administer the product. Slyngstad, after 11 years taking the reins of the fund, ad Last week he retired (with 55 years) after the vehicle first reached an estate of 10 billion Norwegian kronor.
Under his baton, the fund has achieved an average annual return of 8%. The total return since the creation of the fund is somewhat lower, 5.9% per year. These returns have allowed capital to accumulate, and accumulate. Year after year. The magic of compound interest. Of the total assets of the fund, only one third corresponds to oil revenues, while two thirds come from the revaluation of investments and the strength of the Norwegian krona against other currencies. That is, the managers have managed to generate wealth for more than 600,000 million euros.
Abu Dhabi Investment Authority. The origin of this vehicle is very similar to Norway's oil fund: the exploitation of fossil fuels in the country. Also the purpose: to prepare the economy for the moment when black gold begins to run out. It currently has assets under management of nearly 800,000 million euros. The vehicle was created in 1976, as an investment arm outside the Government. 35% of its portfolio is in the Stock Exchange of developed economies, 15% in equities of emerging countries and about 15% in sovereign debt. The rest is invested in small capitalization companies, unlisted companies, infrastructure, and real estate. Other major sovereign wealth funds in the world are Kuwait (about 600,000 million euros of assets) and Saudi Arabia (450,000 million). Dubai and Qatar also have powerful investor arms.
"When the fund was created, nobody thought it would exceed 10 billion crowns," Slyngstad explained. "The return on investments has been so high that it can be compared to having discovered oil again".
The history of the fund
On December 23, Norway will celebrate what has been the greatest Christmas gift in its history: 50 years have passed since the discovery of oil and gas deposits in the North Sea. At the end of the 60s there was a majority feeling in the country to integrate into the European Economic Community (EEC, the germ of the current European Union). But When the Norwegians realized that they lived on top of one of the largest fossil fuel reserves on the planet, they opted in a referendum to stay out of European integration.
The decision to create a vehicle in which to accumulate energy income was forged in the 1970s. The 1973 oil crisis caused a sharp volatility in oil prices. Norwegian politicians began to consider then that it would be good to accumulate financial reserves in order to cope with the fluctuations in commodity markets and to prepare for the future depletion of its fossil fuel reserves. Oil price fluctuations had a very negative impact on the country's macroeconomic data, and Norway wanted to cushion that dependence.
During the 80s the committee was created The Tempo to decide what to do with all that money, and how to manage it to stabilize the present and guarantee the future. It was chaired by the governor of the Central Bank of Norway, Hermod Skånland. It was this committee who proposed in 1983 the creation of a fund. In 1990, Parliament passed the law that created the Petroleum Fund, although it was not until 1996 when the Ministry of Finance made its first contribution.
During the first years of operation, the fund mainly invested in public debt. In 2008, sovereign bonds continued to carry more weight than the Stock Exchange. But nevertheless, After the bankruptcy of Lehman Brothers and the terrible subsequent financial crisis, the fund managers (already led by Yngve Slyngstad) chose not to give up and increase their commitment to equities. Today, 70% of the vehicle's assets are securities. It is estimated that the fund controls 1.5% of all listed companies on the planet.
The income from which the fund is nurtured is the taxes charged to oil companies licensed to exploit Norwegian oil fields; the fees paid by firms that are doing surveys; and dividends generated by the semi-state oil company Equinor.
Operation and ethical investment
This money is transferred every year from the Ministry of Finance to the oil fund. The mandate for the management of its assets is entrusted to the central bank of Norway (Norges Bank) and, more specifically, to its investment arm Norges Bank Investment Management. From the Government the general lines of the investment policy are set, as well as the exclusions: those companies in which the fund will not invest for breaching certain ethical principles. Among them are the main arms companies (such as Lockheed Martin, or the manufacturers of Boeing and Airbus planes), the tobacco companies (Imperial Tabacco, Philip Morris …), but also the Wall Mart supermarkets (for their arms sales policy ). In 2016, the fund announced that it would dispose of 52 coal producing companies in its portfolio. Its principles of socially sustainable investment are a world reference.
In total, the fund has investments in 9,158 companies in 73 countries around the world, including giants like Apple, Nestle, Microsoft or Samssung. In Spain, the fund invests in 85 companies. In some, such as Viscofan, it controls more than 5% of the capital.
Regarding the use of the fund, the Norwegian Government can only have a small amount each year. More or less, what you have rented in real terms. On average, just over 3%. Even so, the investment vehicle is already such that these resources cover 20% of the General Budgets. In the country there is a broad consensus on how to use the money saved: better to spend little today and save for the future. In fact, the years that the Government has a fiscal surplus, the resources are transferred to the fund. If there is a deficit, the mismatch is complemented with money from the sovereign vehicle.
“Norway has been recognized internationally as a successful model in the management of our oil and gas reserves. The purpose of the fund is to achieve the highest possible returns for Norwegians, assuming a controlled risk, ”explains Jens Stoltenberg, who was the Norwegian Finance Minister, Prime Minister (2000-2001 and 2005-2013), party leader, in a video Labor and is currently the secretary general of NATO.
In recent years, one of the changes the fund is experiencing is its investment in real estate assetss, which already represent almost 3% of the total. This way they hope to better cushion possible stock market fluctuations. The fund revaluation forecasts are good and by 2025 its managers expect to manage 12.2 trillion Norwegian kronor (1.2 trillion euros).
China Investment Corporation. It is the vehicle used by the Chinese Government to manage its international reserves. It is one of the most modern sovereign wealth funds, as it was established in 2007, but it already accumulates a net worth of around 900,000 million euros. It is the second largest sovereign fund in the world. One of the last operations he is preparing is taking a stake in Aramco, the state oil company in Saudi Arabia, which will soon be listed. In 2017 he acquired a skyscraper in New York (Avenue of The Americas). It has a subsidiary in Hong Kong. The governance model on which CIC was based was the Hong Kong Monetary Authority, a sovereign fund with 26 years of history. The objective of this vehicle is to guarantee the exchange stability of the British ex-colony and its financial system. Manage assets for about 400,000 million euros.
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