Norway’s Wealth Fund Is Now Twice the Size of Its Economy

(Bloomberg) -- Norway’s government proposed improving oversight of its sovereign wealth fund after it has swelled to more than twice the size of the economy since it was set up two decades ago.

The government proposed that a new monetary policy committee be set up within the central bank, freeing the board to focus more on supervising the fund. The government stopped short of moving the $1 trillion fund out of the central bank, which had been recommended by a commission earlier this year amid concerns over its growing complexity and size.

“Keeping the management of the fund in Norges Bank implies that the Bank will continue to have broad and complex responsibilities,” Finance Minister Siv Jensen said in a statement. “We must ensure that the governance structures are well adapted to these responsibilities.”

The government plans to present a bill to parliament in the spring, she said.

The giant fund, created from Norway’s oil wealth, straddles the world and owns about 1.4 percent of global stocks. Its growing heft also means it’s contributing a growing share to Norway’s annual budget -- estimated at 17 percent ex-oil next year -- meaning its management is becoming more and more important in maintaining the country’s lavish welfare state.

The fund has struggled to meet return targets over the past years as interest rates slid to record lows. It has also moved into real estate, boosting stock holdings to 70 percent of its portfolio and raised holdings in emerging markets, adding to complexity.

The government recommended that the central bank governor chair both the new policy committee as well as the board. It called for maintaining the set up with two deputy governors, including one in charge of the wealth fund and the other focused on central banking. They should also be members of both the policy committee and the board.

The committee should be made up of five members, while the board should number nine.

“Given its more focused role, the external members of the board can to a greater extent than today be chosen based on their expertise in areas such as risk management, asset management, and responsible investment practices,” the government said.

Opposition Reactions

The Christian Democrats, who are due to decide in two weeks whether to keep supporting or the minority government in parliament or potentially unseat it, came out against the advice. Central banking and capital management are very different activities, and have both become more demanding for Norges Bank than before, lawmaker Kjell Ingolf Ropstad said in a statement.

“I’m disappointed,” he said. “It’s strange that the government would to such an extent disregard the solid advice from the Gjedrem commission.”

The opposition parties were more supportive of the government’s proposal. Svein Roald Hansen of Labor, parliament’s biggest group, called it “balanced,” while the Socialist Left Party’s Kari Elisabeth Kaski said the proposal seemed “in large part reasonable.”

The government also proposed giving more independence to the central bank by doing away with its duty to submit matters of importance to the Finance Ministry before a decision is made. “The Bank should instead inform the ministry about matters of importance,” it said.

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