Reshaping the Norwegian Pension Fund Global? From Global-Legal to Welfare State Enhancing Economic Instrument

The Norwegians recently released its Official Norwegian Reports NOU 2017:13 (Summary): The Act relating to Norges Bank and the Monetary System and the organisation of Norges Bank and the management of the Government Pension Fund Global New central bank act.  

The mandate of the Commission has been to propose a new Act relating to Norges Bank and the Monetary System and consider the organisation of Norges Bank and the management of the Government Pension Fund Global (GPFG), also referred to as the Fund. (Report NOU 2017:13 at ¶ 1.1)

The Report includes a number of relevant recommendations for the operation of the Norwegian Pension Fund Global and the structures for its embedding within the Norwegian State apparatus. In its 23 June Press Release, the Norwegian state described a core recommendaiton: "Government Pension Fund Global (GPFG) be managed by a separate statutory entity demerged from Norges Bank."

The Press Release along with brief comments follow.  The Report itself may be accessed here. 

The reorganization of the central banking functions in Norway might be long overdue.  Over the past decades the Bank has been increasingly tasked with a number of objectives that reflected the sometimes conflicting agendas of temporary government majorities while they were in power. In addition, as the report suggests, the ability of the Bank to focus on its core missions in ways that are efficient and efficiently accountable, could be improved by structural adjustments and reallocation of functions. 

The management of the Fund has become more extensive than expected at the time this function was assigned to Norges Bank. The Fund’s investment universe has been broadened to include emerging economies and real estate. The size of the Fund has increased substantially and hence the Fund has become of considerable importance for the Norwegian economy. The Fund is now of a size equivalent to around three times annual national income. (Report NOU 2017:13 at ¶ 1.1.1)

The proposed alternatives are unremarkable. The Commission had no interest in changing the overall function of the Pension Fund, but defined that role in narrow and substantially financial terms.

In order to safeguard the important role of the Fund in overall economic policy, the Commission proposes to incorporate into the Government Pension Fund Act that the Fund is to be invested abroad, that the capital in the Fund is to reflect real government saving and a goal formulation that strengthens the emphasis on the Fund’s function as a source of financing of the welfare state across generations.  The requirement of the highest possible return at an acceptable and carefully weighed risk level is thus of particular importance. (Report NOU 2017:13 at ¶ 1.1.1(4))

The Commission cautioned against breaking up the Pension Fund Global (though there was no hint of any effort to recombine the Pension Fund Global with the domestic fund, the Folketrygdfondet). More potentially troubling is the suggestion that the objectives of the Fund exclude any but the most narrow macro-economic objectives tied to the maintenance of the Norwegian welfare state: 

The Commission would also caution against using the Fund as an instrument of foreign policy, business policy, regional policy or environmental policy. Public resources to promote these policies should be allocated via the central government budget subject to the criteria for prioritisation, realistic budgeting, transparency and the loss provisioning practices that follow thereof. (Report NOU 2017:13 at ¶ 1.1.1(4))

The statement is odd precisely because the Fund has been used precisely for these purposes since its establishment. Indeed, the Fund has served the state well in that respect, and in the process augmented the ability of the Fund to achieve its internal macro-economic objectives with respect to the care and feeding of the Norwegian welfare state (see, e.g., here).  And it has done so authoritatively just recently (see, e.g., here). To some extent it may appear to reflect Norwegian internal politics. This statement may be read in light of recent reforms to reduce the influence of the Ethics Council and to detach the oversight of the Fund from the Foreign Ministry to the Norges Bank. Yet to the extent it signals even more structural changes in the principles under which the Fund operates, this trend bears some close watching. This is especially important in the context of the duties and responsibilities of the Pension Fund Global with respect to human rights.  For the moment, however, it is too early to tell. 

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Press release from the Law Commission: The Government Pension Fund Global should be managed by a separate statutory entity


Press release | Date: 2017-06-23


The Commission on the Act relating to Norges Bank and the Monetary System recommends that the Government Pension Fund Global (GPFG) be managed by a separate statutory entity demerged from Norges Bank.


The Commission today submitted its report to the Minister of Finance, Siv Jensen.

“Both central banking and investment management place greater demands on the board, senior management and the organisation than earlier. Moreover, the activities differ in nature, and the scope of the tasks involved is substantial. With two separate entities, the professional competence and the governing bodies can more easily be tailored to the task at hand,” said the chair of the Commission, Svein Gjedrem.

The Commission proposes that the investment management company be established as a separate statutory entity along the lines of the Folketrygdfondet. The entity should have a government-appointed board. The Ministry of Finance should, as is the case today, define the investment mandate pursuant to the Act on the Government Pension Fund. The Commission assumes that the practice of parliamentary endorsement of important changes to the mandate is retained.

The Ministry oversees the board’s decisions and compliance with the investment mandate. The entity reports to the Ministry of Finance, and the Ministry reports on the Fund’s activities to the Storting (Norwegian parliament).

“The main risk ssociated with such a separation is that the current framework for the Government Pension Fund Global could be compromised. I want to emphasise that a separation must be carried out in a sound manner and must not in any other respect affect the framework for the Fund,” said Mr Gjedrem.

The Commission would caution against dividing the Fund into several entities, in the light of the additional costs and management challenges this would entail. It is not meaningful in this case to create competition between government-controlled investment entities. The Commission would also caution against using the Fund as an instrument of foreign policy, business policy, regional policy or environmental policy. The Fund must not become a government budget number two for purposes that are not prioritised in the annual budget process.

With a view to safeguarding the Fund’s important role in overall economic policy, the Commission proposes a goal formulation in the Government Pension Fund Act that strengthens the emphasis on the Fund’s function as a source of financing of the welfare state across generations. The requirement of the highest possible return at an acceptable and carefully weighed risk level is thus of particular importance. The Fund must be a responsible investor. The Commission further proposes that the current practice of investing the Fund abroad be established by law.

“This would reflect the Fund’s role as a pillar for financing the welfare state and its role as a savings fund for the nation,” said Mr Gjedrem.

The Government Pension Fund Global can be managed by Norges Bank

The Commission presents two alternative models should the Fund be kept under the Bank. In one model, a separate board is established for investment management, in addition to a board for Norges Bank and a committee for monetary policy and financial stability. The other model builds to a greater extent on today’s governance model with a board and a supervisory council, but includes a committee for monetary policy and financial stability and some changes to the supervisory council. The Commission is of the view that both of these models are feasible and adequate, but the first model may be preferable.