Strategic Benchmark Index

Government Pension Fund Global (GPFG)

The mandate issued by the Ministry of Finance to Norges Bank expresses the long-term investment strategy for the Fund, including the strategic benchmark index and appurtenant provisions on the execution of the management assignment. The strategic benchmark index comprises separate indices for the equity and fixed-income portfolio, and stipulates a fixed allocation to equities of 62.5 percent. The equity portion has been selected on the basis of the long-term trade-off between expected return and risk

The benchmark index is based on broad, global indices from leading providers which largely reflect the investment opportunities in the global equity and fixed income markets. The management of the Fund is therefore based on the total risk of the Fund chiefly being a result of the developments in the benchmark index set by the Ministry. The management framework also entails a moderate scope for deviations from the benchmark index.

The benchmark index adopted for the Fund’s equity investments is prepared by FTSE Russell and includes all countries, apart from Norway, classified by the index provider as developed markets, advanced emerging markets or secondary emerging markets.

The fixed-income benchmark index is provided by Bloomberg (1) and comprises 70 percent government bonds and 30 percent corporate bonds. The composition of the government part of the fixed-income benchmark index is based on the currencies included in the relevant sub-indices prepared by Bloomberg, with the exception of Norwegian kroner. The corporate part comprises seven approved developed market currencies.

The distribution of the benchmark index across countries and geographical regions is based on a principle of market weighting for equities and corporate bonds, whilst for government bonds it is based on the relative size of countries’ economies, as measured by gross domestic product (GDP weights). The regional distribution of the equity and fixed-income benchmark is supplemented by certain adjustment factors.

With effect from 1 January 2017 the benchmark index comprises listed equities and bonds only. The real estate portfolio was at the same time removed from the strategic benchmark index and included in Norges Bank’s scope for deviation from the index. An upper cap of 7 percent of the Fund capital has been introduced for investments in unlisted real estate.

(1) Bloomberg L.P. completed its acquisition of Barclays Risk Analytics and Index Solutions Ltd. from Barclays PLC on August 24, 2016.

Composition of the strategic and actual benchmark index