1. Introduction

A much smaller government owned fund invested in Norwegian and Nordic stocks, formerly known as Folketrygdfondet, had its name changed into the State Pension Fund – Domestic, abbreviated to GPF-D.

Alternative investments may also be, for instance, private equity funds or hedge funds. By historic convention some large funds, including the very large U. S. Social Security Trust Fund, are not considered as SWFs.

Other examples of successful resource management may include Botswana, Chile, Australia and Canada.

The first drilling started 19 July 1966, when Exxon moved the platform Ocean Traveler from the Gulf of Mexico to the North Sea. The year before, Exxon had been awarded 12 out of a total of 78 blocks which made the company the largest license owner on the Norwegian shelf. Traces of oil were found in the second well, but this finding was developed only after 32 years, as part of the Balder field.

According to a news article on E24.no, in the event of the 50-year anniversary for the start of test drilling, there had been much discussion on the prospects for oil and gas exploration off the coast prior to this. See https://​e24.​no/​energi/​nordsjoen/​50-aar-siden-startskuddetfor-norsk-(…), published 19 July, and accessed 20 July 2016.

According to a statement by Norway’s Geological Survey, in 1958, “one (could) disregard the possibility for there being coal, oil, or sulfur on the continental shelf along the Norwegian coast.” However, Erik Pontoppidan the younger (1698–1764), a professor and the bishop of Bergen, had written in 1752 that discoveries of oil and other resources (petroleum, sulfur etc.) could be expected in the ocean as well as on land. Cited also by Øystein Olsen (2008), then Managing Director of Statistics Norway, in a speech - translation from Norwegian by this author.

On self-restraint and fiscal rules in relation to fiscal stabilization, see e.g. Bayoumi and Eichengreen (1995) and Millar (1997), whose data are mainly from states and provinces in the United States and Canada. Budget rules seem to contribute to stabilizing public expenditures without impacting much on the volatility of GDP.

In the earlier literature, the concept of so-called back stop technology has been applied. Since crude oil could be made synthetically, there would be an upper bound for crude oil prices reflecting its costs of production. Today, alternatives to fossil fuel, or greener alternatives, carries much more interest, as the climate problem due to green-house gas emissions makes continued large-scale use of hydrocarbons as an energy source much more uncertain. This may be the most important uncertainty today.

The Norwegian fiscal rule from 2001 is a spending rule. It allowed for up to 4 per cent of the value of the fund at the previous year end to be spent in the budget, a rough approximation to the expected real return from the Fund. This return estimate was revised to down 3 per cent in 2017 due to, inter alia, very low interest rates.

This kind of assumption is reflected, inter alia, in Hotelling’s (1931) rule, which states that a resource owner should let the resource stay in the ground if it’s price would increase more than the owner’s discount rate. This strategy would maximize the return from a non-renewable resource. Frankel op. cit. points out that the resource supply may be elastic within a range and tend to increase with the resource price. Even if e.g. crude oil deposits are fixed, more of the deposits is likely to be found and brought to market in time periods when the price of oil is high.

An example from some years back, is the hedge fund Long-Term Capital Management L.P. (LTCM), a hedge fund based in Greenwich, Connecticut, which applied absolute-return trading strategies with high financial leverage. It was a prestigious fund, established in 1994 by the former vice chairman and head of bond trading at the investment bank Salomon Brothers, John W. Meriwether. Members of its board of directors included Myron S. Scholes and Robert C. Merton, who shared the 1997 Sveriges Riksbank’s prize in the memory of Alfred Nobel (‘the Nobel prize’). The prize was awarded “for a new method to determine the value of derivatives”. The annualized returns of the LTCM after fees exceeded 21 per cent in the first year, and came in at 43 pct. in the second year, and 41 pct. in the third year. However, massive losses were made when spread bets went wrong after the 1997 Asian financial crisis and the 1998 Russian financial crisis. In 1998 it lost 4.6 billion dollars in less than four months. Sources: Wikipedia.org and Nobelprize.org, accessed 28 and 29 February 2021, respectively.

See the manuscript for The Annual speech by Central Bank Governor Øystein Olsen (2012) on 16 February.

The initial benchmark was more conservative, with 40 and 60 per cent, respectively, in equities and fixed-income securities. From the summer of 2007, the weights with respect to equities and fixed-income were reversed, to 60 per cent equities and 40 per cent fixed-income. Two years were allowed to phase in this large change. The new allocation in addition allowed for up to 5 per cent in unlisted real estate, as a component of the fixed-income allocation. The maximum per cent was increased to 7 per cent in February 2020. Further, there is a limit of 2 per cent for unlisted infrastructure. A neutral equity allocation of 60 per cent was attained again in August 2009, due to purchases of 1.010 billion kroner worth of shares, of which 641 billion were fresh funds and 369 billion kroner were obtained by selling fixed-income securities. Source: nbim.no, “Fra 40 til 60 prosent aksjer”, accessed 11 April 2020.

This was done in response to a recommendation from a government commission, which advocated an equity allocation at 70 per cent. However, the chair of the commission, Knut Anton Mork, dissented. In his view a 70 per cent equity share was too high in view of the increased risk implied. His advice was, instead, to reduce the equity share in the strategic benchmark to 50 per cent. See the Mork Commission’s report, NOU 2016: 20.

See e.g. Gieve (2008), who cited Deutsche Bank and Morgan Stanley on the occurrence of new SWFs. In that author’s view, the growth in SWFs is positive to the extent that it increases liquidity for some investments that central banks would not undertake, and could lead to both improved returns on investments and more available fund for various purposes, and thus also an improved global efficiency in capital allocation. Central banks have traditionally invested in long-term government bonds of OECD countries, particularly U. S. Treasury bonds. The yield on such bonds dropped from about 5 per cent annually in 1995 to about zero in 2008, which was still the yield late in 2020.

This institution, formally established in 1982, traces its roots to the Kuwait Investment Board, established in 1953, eight years prior to Kuwait’s independence. Source: kia.gov.kw, accessed 1 December 2018. Policy challenges for that country, including how to save for future generations, were discussed by Chalk et al. (1997).

See for instance The World Bank (2014).

See, for instance, a debate article by B. Espen Eckbo of the Tuck School of Business, Dartmouth College, in Dagens Næringliv online. Source: dn.no, accessed 28 April 2020 (“The Question We Should Ask the New Head of the GPF-G”). Eckbo warns against a tendency of an increased appetite for active mandates – inter alia in unlisted stocks, property, and international infrastructure projects, by the management of the GPF-G, fronted by the departing chief executive in 2020, Yngve Slyngstad. His replacement, Nicolai Tangen, has made some statements that indicate a continued, and perhaps increased, appetite for active mandates. There may thus be more of this.

Between 1980 and 2006, the financial services sector in the United States grew from 4.9 to 8.3 per cent of GDP. Scale economies in investing seemed to benefit only investment managers, as expenses for clients rose over time. In Malkiel’s view, «[t]he major inefficiency in financial markets today involves the market for investment advice, and pose the question of why investors continue to pay fees for asset management services that are so high. It is hard to think of any other service that is priced at such a high proportion of value» (p. 108).

Global stock market development according to Norwegian Ministry of Finance (2020).