Macro Watch: For many decades, molding the world into a nicer place has all too often been considered incompatible with money-making. Fortunately, Norway seems to have broken this stereotypical view by recording high returns on its government pension fund while simultaneously investing only in companies that are not involved in activities that would contribute to the violation of human rights, corruption, or environmental damage, as well as following other guidelines set by the Council of Ethics. The fund is essentially the nation’s savings account for future generations as it is derived from oil production endeavors, which are currently at their peak and are expected to decline over the next few decades.
GDP & Sovereign Wealth Funds Between Norway and UAE
Chart provided by: CEIC Data
The government pension fund, exceeding expectations since its establishment in 1990, is now the world’s second largest sovereign wealth fund at USD 573 billion, slightly behind the 1976 Abu Dhabi Investment Authority (ADIA), currently estimated to be at USD 627 billion. Exact figures for ADIA’s total assets are unknown as they have never been officially published. Norway’s government pension fund is solely managed by Norges Bank Investment Management (NBIM). In terms of ethics and transparency, NBIM was ranked number 1 in the world in 2010 by the U.S.-based Peterson Institute for International Economics, with an overall score of 96% according to the Santiago Principles. (The “passing grade” for full compliance of the principles is 76%.) ADIA was ranked last, however, with a score of only 12%. Norway’s commitment towards ethics is credited to its basic principle of social and ecological responsibility as the key to safeguarding its own financial returns. Throughout its history, NBIM has excluded many renowned corporations, such as Wal-Mart and Lockheed, due to their violation of ethical guidelines.
Despite its remarkable success, both Norway’s GDP and NBIM’s fund took quite a dip during the global financial crisis in the fourth quarter of 2008. This was caused by the government using the fund to stimulate its economy, as well as 60% of the fund being invested in equities, which took the brunt of the damage during the crisis. The GDP of the United Arab Emirates, in contrast, was not affected by the crisis. Nevertheless, the value of Norway’s fund recovered quickly in 2009, and the trend suggests that it will soon overtake ADIA as the world’s largest sovereign wealth fund.
By Ken Ng Cong Jing in Malaysia – CEIC Analyst