Norway: The Norwegian Government Pension Fund Global Gradually Reaches Out To New Asset Classes

The Norwegian Government Pension Fund Global (the "Fund") is slowly reaching out to new asset classes, and it is reason to believe that private equity and infrastructure investments will be next to come. The purpose of this newsletter is to provide insight and update with respect to the Fund, its investment mandate and where we believe it might be heading.

Formally established in 1990 with the first capital injection in 1996, the Fundis today the largest sovereign wealth fund in the world with assets under management (AuM) of more than NOK 4,500 billions (USD 750 billions / EUR 560 billions).

With a global investment mandate, excl. Norway, the Fund is also a prominent player on the world's financial markets. The management of the Fund has matured gradually since its inception and the Fund made its first investments in unlisted real estate in 2011.

Despite its name, the Fund is not a pension fund in the ordinary sense of the word as it derives its financial backing from Norwegian oil profits, as opposed to pensioners and employers. The main purpose of the Fund is, however, to facilitate Norwegian government savings to meet the rise in the longer term public pension expenditures and to support a long-term management of petroleum revenues, hence the Fund's name.

Still mostly internally managed, but specialised asset managers should pay attention 

Norges Bank Investment Management (NBIM), an arm of the Norwegian Central Bank, manages the Fund out of its offices in Oslo, London, New York, Shanghai and Singapore, according to a mandate set by the Ministry of Finance. About 96% of the Fund's assets are still internally managed by NBIM.

NBIM primarily awards external equity mandates in markets and segments where NBIM neither has nor is expected to build an internal expertise. Many of the external mandates are in market segments and areas where NBIM considers there are a considerable potential of generating excess return, typically in small and medium-sized companies and emerging markets. Asset managers, who seek to generate excess return through fundamental analysis of individual companies within a focused and concentrated investment mandate, stand a good chance of passing the first gate. These managers need to convince NBIM that they apply a considerable analytical capacity to a limited number of equities in their specialist fields.

At the end of 2012 about NOK 149 billions (USD 25 billions / EUR 18.6 billions), i.e. 3.9 percent of the Fund, were managed by 45 external managers, spread across 51 equity mandates and one fixed income mandate.

Of the eight external equity mandates awarded in 2011, four of the managers were specialized on small and mid-cap companies in a developed country, three were specialised in the emerging markets of China and Malaysia, and one was specialised on environmental investments.

NBIM keeps awarding more external equity mandates and is currently conducting searches for a number of listed equity mandates (long only) within renewable/alternative energy, clean technology and water. These mandates are in the following regions:


  • Germany small and mid cap
  • France small and mid cap
  • Italy small and mid cap
  • Greece small and mid cap


  • Andean region
  • Brazil
  • Chile
  • Colombia
  • Mexico


  • Israel
  • South Africa
  • United Arab Emirates
  • Russia
  • Bulgaria
  • Romania
  • Slovakia
  • Egypt
  • Arabia


  • Japan small and mid cap
  • China
  • China A-shares
  • India
  • Indonesia
  • Malaysia
  • Thailand
  • Philippines
  • Vietnam

NBIM is currently also searching for managers within emerging market debt, i.e. regional corporate credit funds in emerging Asia and Latin America and global emerging market debt funds, primarily  absolute return mandates.

Ambition – Management of the Fund to represent Best Practice for SRI investments

Socially Responsible Investment (SRI) forms an integrated part of the management of the Fund, and both NBIM and the Norwegian Ministry of Finance want to further refine the Fund's SRI strategy over the coming years. The Norwegian Fund has a separate Supervisory Council who supervises the Fund's investments and compliance with the SRI strategy.

The Fund's SRI strategy builds on tree basic principles:

  • Exercise of ownership rights in order to promote long-term financial returns, based on the UN Global Compact and the OECD Guidelines for Corporate Governance and for Multinational Enterprises
  • Negative screening of companies from the investment universe that either themselves, or through entities they control:
    • produce weapons that through normal use may violate fundamental humanitarian principles,
    • produce tobacco, or
    • sell weapons or military materiel to excluded states
  • Exclusion of companies from the investment universe where there is considered to be an unacceptable risk of contributing to:
    • Serious or systematic human rights violations, such as murder, torture, deprivation of liberty, forced labour, certain forms of child labour and other child exploitation
    • Serious violations of individuals' rights in situations of war or conflict
    • Severe environmental damages
    • Gross corruption
    • Other particularly serious violations of fundamental ethical norms

The Norwegian Ministry of Finance and NBIM has a common ambition of developing the management of the Fund to represent Best Practice in SRI within a few years. Hence, the Fund's SRI strategy and work will be further developed and intensified over the coming years. Although recent cases show that NBIM still have a long way to go to meet these ambitions, larger international corporations should pay closer attention to NBIM and its SRI work going forward if they are at risk of coming into focus of NBIM's SRI department.

Developments since inception – gradually maturing and refining the investment strategy

The management of the Fund has gradually matured along with the Fund itself over the years. The table below shows important milestones in this respect. The Fund receives a top score on the Linaburg-Maduell Transparency Index, which was designed at the Sovereign Wealth Fund Institute as a method of rating transparency in respect to sovereign wealth Funds.

For the outside world NBIM and the Fund are still somewhat unknown, though, and it seems that many foreigners as well as Norwegians still have a lack of insight into NBIM as well as the Fund's investment mandate. As NBIM is still a young and rather small organisation, one should expect numerous changes and improvements over the next 10-year period, reflecting the continued development of a more professional and experienced organisation.


First capital injection to the Fund.


Equities included in the reference index with a weight of 40 percent.


Some emerging markets included in the reference index for equities.


Non-state guaranteed bonds included in the reference index for fixed-income.


More emerging markets included in the reference index for equities. Ethical guidelines introduced for the first time.


The Ministry of Finance decides to increase the Fund's equity investments from 40 to 60 percent. Small cap companies included in the reference index for equities.


The Ministry of Finance decides to invest up to 5 percent of the Fund's assets in unlisted real estate. All emerging markets according to FTSE's definition are being included.


The Fund's Ethical Guidelines are being evaluated.


The Ministry of Finance passes guidelines for investments in unlisted real estate. The active management of the Fund are being evaluated.


The first real estate investments are being made, in London and Paris. NBIM S.à.r.l. is being established in Luxembourg, for channelling of the Fund's real estate investments in Continental Europe.


The Ministry of Finance passes a new reference index for fixed income, and new geographical distribution of the reference index for equities. New guidelines for rebalancing. Real estate investments are being made in Berlin and Frankfurt.

Changes in the strategy of the Fund – unlisted real estate already included, private equity and infrastructure probably next to come

The investment management of the Fund has a very long investment horizon. The Fund has no clearly defined liabilities and as of today it seems unlikely that the Norwegian Government will need to withdraw large amounts from the Fund's assets. These characteristics are considered to give the Fund a greater ability to absorb risk than other investors and the investment strategy of the Fund is by that reason characterized, in particular, by seeking to exploit the long investment horizon of the Fund and profiting from risk premiums over time.

The long-term investment strategy of the Fund requires an equity portion of 60 percent of the Fund's assets, up from 40 percent in 2010.

Unlisted real estate was included in 2011, and the Fund currently holds about 1 percent of its total value in unlisted real estate. Within some years, NBIM expects to reach the current 5 percent threshold in unlisted real estate, which will reduce the fixed income quota correspondingly. While the first real estate investments were made in the UK and Continental Europe, the Fund's real estate mandate was made global (ex. Norway) in 2013 and in February 2013, the Fund made a USD 1.2 billion investment in New York, through a joint venture with the US based investment company TIAA-CREF. It is expected that real estate investments in Asia might be next to come. The CEO of NBIM has stated that the main part of the Fund's real estate investments will be made in office facilities in the world's largest cities.

Together with NBIM, the Ministry of Finance has also considered if a portion of the Fund's assets should be invested in private equity and infrastructure. The Ministry of Finance has noted that both the size and the long investment horizon of the Fund make it appropriate to consider such investments. At the same time, the assessment was that it is uncertain whether the Fund would be able to achieve a satisfactory risk-adjusted return on such investments, net of costs. The Minister of Finance has stated that one should first gain experience from the largest and most developed unlisted market – the real estate market – before entering new asset classes. At the same time it was pointed out that the Fund's characteristics make it appropriate to return to the question about private equity and infrastructure at a later stage.

During 2012, NBIM reduced the share of the Fund's investment in Europe to 48 percent, down from 53 percent, and it has been stated that the investments in Europe shall be further reduced to 40 percent over some years as NBIM will boost investments in other regions over the coming years, especially in emerging markets.

One should also note that the Fund already holds about NOK 30 billion worth of African equities. The combination of a reduction in European investments, together with continued huge capital inflows to the Fund for the next 20-30 years will generate major investments in emerging markets, and would certainly represent exiting opportunities for many asset managers.

As Africa rises and private equity and infrastructure investments may be the next asset classes to come, market players within these fields should pay close attention to the Fund in the years ahead.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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