The Government Pension Fund:

Further development of the management of the Government Pension Fund

The Government is today submitting its report to the Storting on the management of the Government Pension Fund in 2014.

– Norges Bank and Folketrygdfondet have managed the Government Pension Fund Global and the Government Pension Fund Norway, respectively, in a sound manner over time. We will build on that. In this report, the Government proposes new steps to further develop the investment strategy of the two funds, says the Minister of Finance, Siv Jensen.

Strong performance in recent years
Norges Bank and Folketrygdfondet have achieved a satisfactory management performance over time. The Fund is a long-term investor with a high capacity to endure year-to-year fluctuations in the value of the Fund. We should be prepared for such fluctuations, says the Minister of Finance, Siv Jensen.

The Government Pension Fund performed well in 2014. Returns were 7.6 percent on the Government Pension Fund Global (GPFG) and 10.7 percent on the Government Pension Fund Norway (GPFN), before asset management costs.

This strong performance reflects positive price developments in stock and bond markets. Last year, Norges Bank delivered a negative excess return in its management of the GPFG, relative to the benchmark index adopted by the Ministry, whilst Folketrygdfondet contributed a positive excess return in its management of the GPFN.

At the end of 2014, the overall value of the Government Pension Fund was NOK 6,616 billion; an increase of more than NOK 1,400 billion over the course of the year. The value of the GPFG has almost doubled over the last three years. The value of the GPFN has also increased considerably over this period.

Further development of the investment strategy
The portion of the GPFG invested in real estate is currently capped at 5 percent. At the end of last year, 2.2 percent of the Fund was invested in this asset class. The report to Parliament outlines the process now initiated to assess whether the real estate investment cap should be increased, as well as whether to permit the Fund to be invested in unlisted infrastructure. The report also describes a review of the management of the GPFN and discusses advice and assessments from Folketrygdfondet concerning unlisted real estate and infrastructure investments. The Ministry intends to revisit these issues in the report on the Government Pension Fund to be published in the spring of 2016.

Returns on the GPFG and the GPFN are primarily determined by developments in the benchmark indices of the funds. At the same time, some scope for deviations from the benchmark indices adopted by the Ministry is needed. This is elaborated on in the report. The Ministry does not plan to change the current 3-percent limit on deviations from the benchmark for the GPFN, as measured by tracking error. A modest increase from 1 percent to 1.25 percent is planned for the GPFG. This will be accompanied by new requirements in the investment mandate for the GPFG, including supplementary reporting of the risk involved in asset management.

Responsible investment
The Government is committed to transparency and ethical awareness in the management of the Government Pension Fund.

The introduction of a new exclusion criterion is proposed, focusing on the conduct of companies in relation to greenhouse gas emissions. Further strengthening of the involvement of Norges Bank is also proposed. This includes expanded reporting by the Bank on its active ownership and its climate change risk assessments.

This report announces that the scale of the environment-related investment mandates for the GPFG will be expanded to NOK 30–60 billion. The efforts to examine the risk to the long-term return on the Fund posed by climate change is also addressed.