Press release from the Law Commission:

The Government Pension Fund Global should be managed by a separate statutory entity

The Commission on the Act relating to Norges Bank and the Monetary System recommends that the Government Pension Fund Global (GPFG) be managed by a separate statutory entity demerged from Norges Bank.

The Commission today submitted its report to the Minister of Finance, Siv Jensen.

“Both central banking and investment management place greater demands on the board, senior management and the organisation than earlier. Moreover, the activities differ in nature, and the scope of the tasks involved is substantial. With two separate entities, the professional competence and the governing bodies can more easily be tailored to the task at hand,” said the chair of the Commission, Svein Gjedrem.

The Commission proposes that the investment management company be established as a separate statutory entity along the lines of the Folketrygdfondet. The entity should have a government-appointed board. The Ministry of Finance should, as is the case today, define the investment mandate pursuant to the Act on the Government Pension Fund. The Commission assumes that the practice of parliamentary endorsement of important changes to the mandate is retained.

The Ministry oversees the board’s decisions and compliance with the investment mandate. The entity reports to the Ministry of Finance, and the Ministry reports on the Fund’s activities to the Storting (Norwegian parliament).

“The main risk ssociated with such a separation is that the current framework for the Government Pension Fund Global could be compromised. I want to emphasise that a separation must be carried out in a sound manner and must not in any other respect affect the framework for the Fund,” said Mr Gjedrem.

The Commission would caution against dividing the Fund into several entities, in the light of the additional costs and management challenges this would entail. It is not meaningful in this case to create competition between government-controlled investment entities. The Commission would also caution against using the Fund as an instrument of foreign policy, business policy, regional policy or environmental policy. The Fund must not become a government budget number two for purposes that are not prioritised in the annual budget process.

With a view to safeguarding the Fund’s important role in overall economic policy, the Commission proposes a goal formulation in the Government Pension Fund Act that strengthens the emphasis on the Fund’s function as a source of financing of the welfare state across generations. The requirement of the highest possible return at an acceptable and carefully weighed risk level is thus of particular importance. The Fund must be a responsible investor. The Commission further proposes that the current practice of investing the Fund abroad be established by law.

“This would reflect the Fund’s role as a pillar for financing the welfare state and its role as a savings fund for the nation,” said Mr Gjedrem. 

The Government Pension Fund Global can be managed by Norges Bank
The Commission presents two alternative models should the Fund be kept under the Bank. In one model, a separate board is established for investment management, in addition to a board for Norges Bank and a committee for monetary policy and financial stability. The other model builds to a greater extent on today’s governance model with a board and a supervisory council, but includes a committee for monetary policy and financial stability and some changes to the supervisory council. The Commission is of the view that both of these models are feasible and adequate, but the first model may be preferable.