The 2.76 trillion Norwegian kronor ($465 billion) Government Pension Fund-Global, Oslo, has increasingly asserted itself as a leader among sovereign wealth funds.
In the past year, the giant oil fund has taken new — and very public — strides in the areas of investment and transparency, while also boosting environmental, social and governance programs.
And the world has been watching, especially in recent years as new sovereign wealth funds have begun to sprout around the globe.
“Whether through its leadership in the exploration of climate risk and strategic asset allocation to its pioneering work to define firm boundaries around the ethical dimensions of investment, the Norwegian Government Pension Fund - Global has been in the vanguard of efforts to advance and mainstream responsible investment,” Paul Clements-Hunt, head of the United Nations Environment Program Finance Initiative, said in the fund's statement of its responsible investment principles.
However, following Norway's lead will be hard for SWFs that aren't from open, democratic states, as it is a country's own citizens and culture that tend to shape policies of their SWFs, observers said.
“That's more or less the Norwegian way — they believe” in issues such as transparency and ESG, said Edwin M. Truman, senior fellow at the Peterson Institute for International Economics, Washington. “Other countries and cultures don't have the same traditions of transparency and accountability that some do.”
Eleven SWFs were created in 2009, with four more already announced this year, according to research cited in a recent paper by Oxford University professors Gordon L. Clark and Ashby H.B. Monk titled, “Sovereignty in the Era of Global Capitalism: The Rise of Sovereign Wealth Funds and the Power of Finance.”
“By these measures, 60% of the SWFs active today were set up in the past decade; growth in the number of SWFs has thus been nothing short of remarkable,” Messrs. Clark and Monk wrote.
SWFs engage investment consultants only at a strategic level, and tend to look at each other for leadership, experts say. SWF officials travel to check out each others' funds, and those seen as leaders get the most visits.
Leaders among SWFs tend to have high-quality internal staffs, are comfortable being transparent in what they do, and are well established, having been through two or three evolutions, said Divyesh Hindocha, global director of consulting at Mercer LLC in London. “The leaders usually have these three characteristics,” he said. Mr. Hindocha was not referring specifically to the Norwegian fund.
Transparency was front-and-center in a recent active management review at the Norwegian fund; the process was completely public and resulted in a cutting-edge proposal to improve passive returns while raising the bar for active management (Pensions & Investments, Jan. 25).
“Making the whole process so transparent was rather unusual (for a SWF) but reflects perhaps the increasing preference of sovereign funds to be seen to be transparent for reasons of good governance,” said Roger Urwin, global head of investment content at Towers Watson & Co., Reigate, England. He noted the similarity to large U.S. public pension funds' investment committee meetings.
Norwegian fund officials say that if the fund is seen as a leader, it is because of standards set by the Norwegian people, the ultimate owners and beneficiaries of the fund.
“Our strategy is driven by the long-term interests of the owners of the fund and the standards they demand,” Dag Dyrdal, chief strategic relations officer at Norges Bank Investment Management, wrote in an e-mail response to questions. “So being regarded as a leader in some areas would be more of a consequence than a goal.” NBIM handles the fund's investments.