Regulations on the Management of the Government Bond Fund

Unofficial translation

 

Laid down by the Ministry of Finance on 18 March 2009 pursuant to Section 3 of Act no. 13 of 6 March 2009 relating to the Government Bond Fund Act.

Section 1. Management of the Government Bond Fund
Folketrygdfondet shall manage the Government Bond Fund (the Bond Fund) on behalf of the Ministry of Finance, cf. Section 2, second paragraph of the Act relating to the Government Bond Fund.

Section 2. Investment of the Bond Fund
The State invests the Bond Fund as a capital contribution to Folketrygdfondet.  Folketrygdfondet shall reinvest this contribution in financial instruments and cash deposits in its own name.
The Board of Directors of Folketrygdfondet is responsible for ensuring that the Bond Fund’s assets are invested with a view to achieving the highest possible return over time within the framework prescribed by the statutes, regulations and supplementary guidelines relating to the management, cf. Section 10. The Board of Directors shall take into account the Bond Fund’s aim of contributing to an increased supply of capital and liquidity in the Norwegian corporate bond market.

Section 3. Investment universe
The Bond Fund’s assets can be invested in sight deposits, deposits and fixed income instruments when the issuer is domiciled in Norway. No investments can be made in loans issued by the central government or municipalities.
A maximum of 10 per cent of the Fund’s assets can be invested in debt that is subordinate to other creditors (subordinate loans). Derivatives can be used in the management of the portfolio. In addition to Norway, counterparties for deposits, securities lending and derivatives transactions may be domiciled in the USA, UK, Denmark, Finland, France, Italy, the Netherlands, Spain, Sweden and Germany.

Section 4. Benchmark portfolio
The Ministry of Finance will establish a benchmark portfolio for the Bond Fund.

Section 5. Diversification requirements etc.
The portion of the Fund’s assets that are invested in the corporate bond market shall be invested in accordance with the following sector distribution:

  • Banking and finance, 25-65 per cent
  • Other, non-financial legal entities, 35-75 per cent

The Fund’s assets can be invested in bonds denominated in currencies other than Norwegian kroner, limited, however, to EUR, GBP and USD. Such investments shall be hedged so that the Fund is not exposed to fluctuations in the exchange rate for the Norwegian krone. 
A maximum of 30 per cent of the Fund’s assets can be invested in bonds issued by enterprises with a credit rating that does not correspond to a classification by Standard & Poor’s as BBB- or better (investment grade classification).

The Fund’s assets cannot be invested in bonds issued by enterprises with a credit rating corresponding to Standard & Poor’s credit rating of CCC+ or lower. If an enterprise in which the Fund’s assets have already been invested is downgraded to a credit rating corresponding to a Standard & Poor’s credit rating of CCC+ or lower, bonds issued by the enterprise in question that have already been acquired can nevertheless be held in the portfolio. 
If an enterprise has not been assigned a credit rating by one of the rating agencies, i.e. Standard & Poor’s, Fitch or Moody’s, then Folketrygdfondet shall assess the enterprise’s creditworthiness to ensure that it is in accordance with the principles in the third and fourth paragraphs.

Section 6. Maximum exposure to an individual issuer
A maximum of 5 per cent of the Bond Fund’s assets can be invested in bonds issued by an individual issuer.
To ensure market-based pricing, Folketrygdfondet shall establish guidelines for the Fund’s maximum share of new bond issues (in the primary market).

Section 7. Documentation of the market price
Acquisition of more than 30 per cent of the volume of a new bond issue (in the primary market) can only take place if Folketrygdfondet can document in writing that the acquisition is made at the market price. The same applies if Folketrygdfondet’s investments for the Government Pension Fund – Norway and Bond Fund combined in the primary market exceed 50 per cent of the outstanding amount.
Acquisitions in the secondary market entailing acquisition of more than 50 per cent of a loan’s outstanding amount by the Bond Fund can only be made if Folketrygdfondet can document that the acquisition is made at the market price. The same applies for any transaction between the Government Pension Fund – Norway and the Bond Fund.

Section 8. Phasing in provisions
Until 20 per cent of the Fund’s assets have been invested in the market, Sections 4 and 5 will not apply. Section 5, fourth paragraph, cf. fifth paragraph, will, however, apply even if the 20 per cent level has not been achieved.

Section 9. Liquidation
Folketrygdfondet shall submit a plan for the liquidation of the Fund to the Ministry of Finance no later than 31 December 2013.

Section 10. Relationship to the regulations for the Government Pension Fund – Norway
Regulations no. 1228 of 7 November 2007 relating to the Government Pension Fund – Norway, Regulations no. 1264 of 10 November 2008 relating to the Annual Accounts etc. of Folketrygdfondet, including the Government Pension Fund – Norway and the Guidelines for the Management of the Government Pension Fund – Norway apply correspondingly to the management of the Bond Fund with the exceptions that follow from this provision.

The following provisions in the Regulations relating to the Government Pension Fund – Norway do not apply.
a) Section 2 (Investment of the Pension Fund)
b) Section 4 (Investment universe)
c) Section 5 (benchmark portfolio and relative volatility)
d) Section 6 (ownership of units)
e) Semi-annual reporting rules in Section 9

The following provisions in the Guidelines for Management of the Government Pension Fund – Norway do not apply.
a) Section 1 (Reference portfolio and investment universe)
b) Section 2 (Rebalancing)
c) Semi-annual reporting rules in Section 4, second paragraph

Section 11. Supplementary rules. Access to derogate from the Regulations.
The Ministry of Finance can issue further supplementary provisions regarding implementation of the Regulations. Under special circumstances the Ministry of Finance may derogate from Sections 4 to 10.

Section 12. Coming into force
The Regulations come into force immediately.