Business Standard - Norway's $1.35 trillion sovereign wealth fund said on Thursday it has in recent weeks divested virtually all its remaining shares in companies belonging to India's Adani group. The fund had divested from five Adani companies since 2014 and at the end of 2022, it remained invested in three, including Adani Ports. Read more
Norway’s sovereign wealth fund, the world’s single largest investor, was established in the 1990s to invest surplus profits from Norway’s huge oil and gas reserves. It is the world’s largest sovereign fund, controlling an average of 1.3% of 9,338 companies across 70 countries. Large holdings include Apple, Nestlé, Microsoft and Samsung.
Background - The sudden access to wealth from natural resources is known to cause a number of challenges to the host country. It can be destabilised by an abrupt, volatile and finite source of revenue and/or be misled to act unsustainably with this inherited asset.
When oil production started in Norway in the early 1970s, the government was aware of the risks to the domestic economy. From an early stage, the government worked to find measures that would allow the sustainable and long-term management of petroleum assets and revenues, creating wealth that would outlive the period of oil production.
To this end, Norway established in 1990 a sovereign wealth fund - the Government Pension Fund Global (GPFG).
The Norwegian SWF was established in 1990 by act of parliament, the 1990 Government Pension Fund Act. The SWF was initially called the Petroleum Fund, and in 2006 it was renamed as the Government Pension Fund Global (GPFG) - as it is known today.
The two principal objectives of the GPFG are to:
Support the long-term management of spending the government's revenues from oil reserves, and in this sense the fund helps the government to hedge against “Dutch disease” and protect the Norwegian economy and maintain the value of the oil assets for future generations
Facilitate savings to finance pension expenditure under the National Insurance Scheme.
With these objectives in mind, the GPFG allows the use of petroleum revenues without affecting the general flow of income, limiting the impact of fluctuating surplus on government spending.
In its capacity as an instrument for state savings, the GPFG differs from traditional funds, which are generally allocated for specific liabilities and don't protect similarly well the asset base.Compared to similar funds, the GPFG has a higher risk bearing capacity because it is not subject to short-term liquidity requirements and has a long investment horizon.
Another important element of the fund is its mandate to operate as a responsible investor promoting sustainable development and good corporate governance. As a result, there are number of blacklisted companies the fund does not invest in, based on either ethical or environmental grounds or both.
The key difference of GPFG with similar funds is that it effectively converts oil assets into an investment portfolio, allowing a systematic management of funds, and to live off the returns of the investment rather than the common practice of spending the value of the asset itself.
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