Norway’s state-owned investment fund has reached the value of $1 trillion for the first time since its establishment in the 1990s, meaning that each citizen of the oil-rich country owns more than $200,000.
Established to manage Norway’s oil revenues, the country’s sovereign wealth fund surpassed the $1-trillion (1.8-trillion-euro) mark on Tuesday thanks to the recent appreciation of the world’s major currencies against the US dollar and rising stock markets across the world.
Theoretically, each of Norway’s 5.3 million citizens owns a slice worth about $189,000 in the fund. However, this piggy bank is intended to finance Norway’s welfare state when the oil wells one day run dry. Until then, the government is allowed to draw only the equivalent of the expected financial returns, a ratio recently reduced from four percent to three percent.
Yngve Slyngstad, Chief Executive Officer (CEO) of the Norwegian central bank’s Investment Management division described the fund’s value as “stunning” and as a “milestone” for the Nordic country. “I don’t think anyone expected the fund to ever reach $1 trillion when the first transfer of oil revenue was made in May 1996,” he said in a statement.
Dawning challenges
The fund has grown at a breathtaking pace, seeing the value of its assets rise 13-fold since 2002. It started out by investing purely in bonds, but now holds close to 65 percent of its assets in shares. With stakes in nearly 9,000 companies, it owns 1.3 percent of the world’s market capitalization, and 2.3 percent in Europe.
In 2011, it made its first investment in property and has since built up a $30-billion portfolio, mostly in the US and Europe. It has also become an increasingly active shareholder, voting against some of its biggest holdings such as Apple and Facebook on corporate governance issues.
But questions about its future have emerged, with Norway’s newly elected center-right government planning to invest more money in privately held assets including infrastructure and private equity. There is also a discussion about whether or not the fund should remain to be based with the central bank, following an official report that recommended a change of organization.
Finally, there are growing concerns about how much of the fund the government uses in its budget. Last year, for the first time, the government began withdrawing more from the fund than it put in, as oil revenues slumped due to the tumbling price of crude.
An unofficial rule to use up to 4 percent of the fund’s value each year has been revised down to 3 percent but many argue that this still could prove too much.