Ida Wolden Bache: Norges Bank’s management of the Government Pension Fund Global Introductory statement by Ms Ida Wolden Bache, Governor of Norges Bank (Central Bank of Norway), at the hearing of the Standing Committee on Finance and Economic Affairs of the Storting (Norwegian parliament), 3 May 2022. * * * I would like to thank the Committee for its invitation. Norges Bank manages the GPFG with the objective of achieving the highest possible return over time within the limits of the investment mandate defined by the Ministry of Finance. The objective of the highest possible return is to be achieved within an adequate control and risk management framework, in a responsible and cost-efficient manner with a high degree of transparency. The investment mandate is extensive. Around 70 percent of the over NOK 11 000 billion in the GPFG is invested in equities, which means we are one of the world’s largest shareholders. We a minority shareholder in around 9000 companies in 70 countries. In addition, we have a broad portfolio of fixed income investments. Some of the GPFG is invested in unlisted real estate, and in 2021, we also invested for the first time in unlisted renewable energy infrastructure. The GPFG is managed to track the benchmark index fairly closely, so that the return largely tracks the return on the benchmark index. The benchmark index is defined by the Ministry of Finance and endorsed by the Storting.
However, even though Norges Bank closely tracks the GPFG’s benchmark index, many big and small choices have to be made every day. The Executive Board is satisfied that the return over time has been higher than the return on the benchmark index against which the GPFG’s performance is measured. For 2021, the GPFG’s investments earned an overall return of 14.5 percent before management costs. The return was 0.74 percentage point higher than the return on the benchmark index defined by the Ministry of Finance. Since the turn of the year, the markets have been affected by Russia’s invasion of Ukraine and higher inflation in many countries. The GPFG’s equity and bond investments both fell in value in the first quarter of the year, and the overall return on investments was a negative 4.9 percent. Norges Bank’s investment management helped to dampen that fall somewhat. The return was 0.66 percentage point higher than the benchmark index for the quarter. The white paper The Government Pension Fund 2022 contains a broad review of the Bank’s active management of the GPFG. The Ministry proposes to maintain the size of the Bank’s permitted deviations from the benchmark index, measured as expected tracking error. This is consistent with Norges Bank’s assessment that the tracking error limit is adequate. On several occasions in 2021, the Executive Board provided the Ministry of Finance with advice and assessments regarding the GPFG’s approach to climate risk. This is also a key topic in this year’s white paper.