A proposal to set lower risk and leverage limits won't significantly affect investments at the 2.6 trillion Norwegian kroner ($429 billion) Government Pension Fund — Global, Oslo, a Norwegian Finance Ministry official said.
In a report to the Norwegian parliament today, the Ministry of Finance recommended lowering the expected tracking error to 1 percentage point from 1.5 percentage points, while enhancing other risk measures as a way of controlling unwanted risk, said Martin Skancke, director general of asset management at the Ministry of Finance.
Also, the Finance Ministry recommended that the tracking error limit become more flexible, so the fund would not be forced to sell securities in times of financial stress.
The effects on investments would not be significant, Mr. Skancke said. Proposed leverage limits would ban certain fixed-income strategies, such as relative value, but the fund doesn't currently hold such investments, he said. Leverage has not been used in equity strategies.
Siv Meisingseth, spokeswoman for Norges Bank Investment Management, which runs the fund's investments, declined to comment.
The central bank set further investment limits on NBIM, including a buffer on tracking error to ensure the 1.5-percentage-point ceiling wasn't exceeded. That buffer was 75%, or a tracking error of 1.125 percentage points, so the decrease would be just 12.5 basis points.
“I don't think this is very substantial,” Mr. Skancke said.
The ministry will wait until next year's report to parliament to make any recommendations on adding systematic risk exposures to its benchmark portfolio.
“That is an interesting, but very complicated, issue” that needs more time, Mr. Skancke said.