Norwegian SWF far too exposed to OECD nations, report finds

NCA/Re-Define report calls for 20% of Norway's GPF foreign assets to be allocated to development finance, as Peterson Institute again gives fund top marks for transparency and accountability
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Norway's Government Pension Fund Global (GPFG) is failing in its fiduciary duty to the people of Norway by making big bets on the continued growth of advanced economies as well as taking on excessive exposure to fossil fuels, according to a new report into Norway's sovereign wealth fund (SWF).

The report, commissioned by Norwegian Church Aid (NCA) and written by the Re-Define think-tank run by Sony Kapoor, has been published in the same week that the Peterson Institute for International Economics (PIIE) said the $720 billion Norwegian SWF remains the world's best run, as well as biggest, sovereign wealth fund.

The latest SWF ‘scoreboard' from PIIE showed Norway's Government Pension Fund (GPF), which includes GPFG as well as Government Pension Fund Norway, earned 98 points in 2012 from a possible 100, on a metric measuring SWF transparency and accountability. Since 2009, the number of SWFs scoring above 80 has increased from seven to 12, while the number of funds scoring 30 or below has also increased, from 13 to 15 – although this can be put down to the inclusion of five new funds scoring under 30.

Among the new additions are the Sovereign Fund of Brazil, with 30 points; the Ghana Petroleum Funds, founded in 2011, with 47 points; and the Fundo Soberano de Angola, which scored just 15. The PIIE study said the Ghanaian government "took care in establishing the Ghanaian SWF's legal structure", but that "subsequent evidence of careful implementation is skimpy".

The case of Qatar, with an extremely low initial score and essentially no improvement over five years, "is particularly troubling", the report said. "Qatar fancies itself as a major political, economic and financial player, and as such should hold itself to a high standard", it concluded.

Investing in the developing world is "a potential win-win opportunity" for the fund

GPF 'must substantially re-balance'

Norway's GPFG again topped the PIIE table, but has this week come in for criticism over its failure to invest in high-growth regions of the world, and to insure itself against a shift towards de-carbonisation by investing in green energy assets.

The NCA/Re-Define report, entitled Investing for the Future: Good for Norway, Good for Development, points to the beneficial side-effects the world's largest investor could have by investing in the developing world, and, on a more prosaic level, points out that it is returning significantly less than its target of 4% per annum on its investments.

The conclusion, the report says, "is very stark and clear".

"The GPF must substantially rebalance its portfolio away from OECD/developed economies towards emerging and developing countries. Otherwise it will fail in the fiduciary duty it owes the citizens of Norway, the ultimate owners of the Fund to maximise return at moderate risk in a manner that is sustainable," says the report.

The NCA charity that commissioned the report said investing in the developing world is "a potential win-win opportunity" for the fund, pointing out that "despite high growth rates and abundant investment opportunities in poor developing countries, only 1% of this fund has been invested in the low-income and lower middle-income group of countries".

The report points out other funds that explicitly invest for development, such as the International Finance Corporation (IFC) or Norway's Norfund, generate better returns than the GPFG. The IFC, it says, has set up its Asset Management Company (AMC) "designed specifically to attract sovereign wealth funds and other long-term investors as co-investors on a commercial basis".

"The most promising near-term method," the report says, "of leveraging GPF funds in a manner that is both good for development and good for Norway is to channel around 20% of the whole GPFs portfolio though the IFC and other development finance institutions by 2020."

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