There is little risk that its owners will make substantial withdrawals from the Fund over short periods. Other funds or individual investors may for various reasons have to reduce their holdings or pull out of capital markets at an unfavourable time. This may be because the investments are leveraged or that a fund is subject to regulatory constraints or simply that a long-term strategy is influenced by short-term assessments. In addition to its large size and long future life, the Fund is not earmarked for particular obligations unlike traditional pension funds. As a result, the Fund has a higher risk-bearing  4  BIS Review 45/2008  capacity than other comparable funds. The Pension Fund can thus a larger extent invest in financial instruments that may vary more in value, but provide a higher expected return, which in practice means investing in equities. The allocation to equities will now increase from 40 to 60 per cent. If returns vary across different markets and market segments, spreading investments can improve the trade-off between risk and return. This is why the Fund is expanding its portfolio, not only in terms of its geographic exposure, but also the depth of its investments in individual markets. The Fund’s strategy results in a very broad market exposure. This limits the Fund’s exposure to large losses on individual investments or group of investments that are influenced by the same or closely related risk factors. Losses on individual investments or main groups of investments will offset each other in a well diversified portfolio.
Household saving is negative and over time households must be expected to seek to redress their financial imbalances. Interest rate developments and a weaker housing market will probably have a dampening impact on demand for goods and services and push up saving. On the upside, we expect sharp growth in government spending, with a marked increase in government purchases of goods and services. Petroleum investment is projected to remain high. Current information nonetheless points towards somewhat slower growth further into 2008. In the monetary policy reports, the results of this assessment are presented in the form of this chart, which shows the baseline scenarios for the interest rate, inflation and capacity utilisation in the economy. Monetary Policy Report 1/08 noted that the outlook and the balance of risks suggest that in the near term the interest rate should be set somewhat higher than projected in Monetary Policy Report 3/07. The prospect of higher price and cost inflation will in the short term more than outweigh the effects of weaker growth in the world economy. There is considerable uncertainty surrounding the projections. The projections for inflation, output, the interest rate and other variables are based on our assessment of the current economic situation and our perception of the functioning of the economy. The uncertainty surrounding the projections for the interest rate, inflation and capacity utilisation is illustrated by fan charts. The wider the fan charts are, the more uncertain the projections are.