Rising tensions and "great power rivalry" mean changes are necessary to the management of Norway's sovereign wealth fund, the world's largest, to strengthen it for more challenging times, an official commission said.
The committee was appointed to assess the international economic and political developments that may be relevant to the 12 trillion Norwegian kroner ($1.17 trillion) Government Pension Fund Global, Oslo. The report is available in Norwegian on the Ministry of Finance's website.
The fund has "long been reaping gains from globalization and technological development. However, Norway cannot rely on the international political and economic investment framework remaining unchanged, and as favorable as it has been," Ulf Sverdrup, chairman of the commission, said in a news release accompanying the report.
Returns may also be lower than the fund has previously achieved.
One change proposed by the commission is that, in more volatile risk situations, greater flexibility will be necessary in order to better manage non-financial risk. This may mean the fund's manager, Norges Bank Investment Management, diverges from the benchmark index.
While the sovereign wealth fund is not a foreign-policy tool, it "increasingly affects Norway's international relations," Mr. Sverdrup said. A such, its reputation — while generally favorable right now — "may become more controversial in the future."
The report highlighted how turbulence in Europe as a result of the war in Ukraine has brought Norway and the GPFG into the spotlight, also noting that a wealth fund based on oil revenues may attract criticism in the future.
"There is 'nowhere to hide' for a large fund like the GPFG. We therefore need to be mentally and politically prepared for fluctuations, for the model to be challenged, and for investment management to become more demanding," Mr. Sverdrup added.
Other proposals include taking note of geopolitical risk in the overall risk assessment.
The commission was appointed by the Ministry of Finance last year. Mr. Sverdrup is also director at the Norwegian Institute of International Affairs.
The report will now be open to public comment until Jan. 5, 2023. The Ministry of Finance will address the report and comments in its annual white paper on the wealth fund.
