Managing wealth – the Norwegian experience PDF Free Download
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Managing wealth – the Norwegian experience
23
Mh
2011
Deputy Governor Jan F. Qvigstad, Norges Bank
23
M
arc
h
2011
The 50
-
year
crisis
The
50
year
crisis
A severe financial and economic crisis
Serious financial distress
Real economy deeply affected
Synchronised internationally
First decline in global output after the Second World
War
Huge
differences
in
the
aftermath
Huge
differences
in
the
aftermath
2
What
caused
the
crisis
?
What
caused
the
crisis
?
1. Global imbalances
2. Banking regulation
3
Global imbalances
Current account. Per cent of global GDP
2 2
China
1 1
China
Asia excl China
US
0 0
-1 -1
2000
2002
2004
2006
2008
2010
-2 -2
2000
2002
2004
2006
2008
2010
4
Source: IMF
New banking
regulations
New
banking
regulations
1. More and better capital
2. Macroprudential
3. Living wills
Real interest rates during two downturns
Real interest rate, Norwa
y
. Per cent
9
9
7
7 1987 - 1989
5
5
3
3
2008 - 2010
1
1
1
1
-
1
-
1
Keeping one’s house in order
Fiscal balance. Per cent o
f
GDP
4 4
0 0
-4 -4
-8 -8 United Kingdom
-12 -12
1993
1997
2001
2005
2009
Sweden
1993
1997
2001
2005
2009
7
Source: OECD
4 per cent
rule
4
per
cent
rule
Rule
of
thumb
: 4 per cent
Rule
of
thumb
:
4
per
cent
Fiscal deficit
Current account
Unemployment
Inflation
Banking assets: maximum 4 times GDP
Spanish regulations
8
Key figures
Per cent
of
GDP
Per
cent
of
GDP
Fiscal
balance Public
debt Current
account Banks’
assets
(times GDP)
2007 2010 2007 2010 2007 2010 2007 2010
Greece -6.4 -9.6 105 140.2 -15.7 -10.6 1.9 2.4
Portugal -2.8 -7.3 62.7 82.8 -10.2 -10.7 2.6 3.1
Spain 1.9 -9.3 36.1 64.4 -10 -4.8 3.2 3.5
Italy -1.5 -5 103.6 118.9 -1.8 -3.2 2.2 2.5
Ireland 0 -32.3 25 97.4 -5.5 -1.1 7.1 8.2
Belgium -0.3 -4.8 84.2 98.6 3.9 1.7 3.9 3.4
9
Sources: EU Commission, national central banks and the ECB
Norway
had
its
own
crisis
early
1990s
Norway
had
its
own
crisis
early
1990s
Unemployment
sharply
up
Unemployment
sharply
up
Preceded b
y
fiscal overs
p
endin
g
y
pg
Credit bin
g
e, followed b
y
housin
g
market bust
g
y
g
All big banks nationalised
10
Lessons drawn from the crisis
“The experience of the last decade clearly indicates
that a capital ratio in keeping with the minimum
standard set out in the statutory regulations is not
sufficient to absorb losses on the scale
id”
exper
i
ence
d
.
”
“
The minimum requirement for pure equity was too
The
minimum
requirement
for
pure
equity
was
too
low, subordinated debt capital qualified too easily for
inclusion in the capital base, and there was a lack of
rules on capital requirements on a consolidated
rules
on
capital
requirements
on
a
consolidated
basis.”
Financial Supervisory Authority Annual Report 1993
11
Financial
Supervisory
Authority
Annual
Report
1993
Crises and structural reforms
First Fiscal
Huge
increase
discovery of
oil on
Norwegian
shelf
Government
Petroleum Fund
Act
rule and
inflation
target
Huge
increase
in fiscal
expenditure Structural
reforms
1969
shelf
1996
1990 1986 2001
1975
Se
v
e
r
a
l1992
Bki
First
transfer
Se e a
devaluations
B
an
ki
ng
crisis
1990-2010: Two golden decades for Norway
Growth Norway EU-15
GDP
71 %
43 %
12
GDP
71
%
43
%
Crises
as a
window
of
opportunity
Crises
as
a
window
of
opportunity
Investing
in
reliability
Investing
in
reliability
Politically costly in the short run
Profitable in the lon
g
run
g
Midwife of structural reforms
Product markets
Wage formation re-established
Monetary policy
Budgetary reforms
13
The Fund mechanism and fiscal policy
Fiscal policy guideline
The
Fund
mechanism
and
fiscal
policy
Spend expected average
real return of Fund
Return on
investments
Revenues from
mainland Norway
Petroleum
revenues
investments
mainland
Norway
revenues
State BudgetFund
Annual transfer of 4
per cent of the Fund
Government
expenditure
per
cent
of
the
Fund
to finance non-oil
deficit
14
Norges Bank as
investment
manager
Norges
Bank
as
investment
manager
Clea
r
mandate from
p
olitical authorities
p
Financial investo
r
No controlling stakes
Risk and expected return
Ethical guidelines
Universal investor
Universal
investor
Focus areas
Corporate governance
15
Strategic asset allocation
Strategic
asset
allocation
Equities (60%)
America
andAfrica
Fixed Income (35% to 40%)
Euro
p
e Asia and
Oceania
America
andAfrica
Euro
p
e Asia and
Oceania
and
Africa
35%
p
50%
Oceania
15%
and
Africa
35%
p
60%
Oceania
5%
Limitations:
• No investments in Norway
Exchange listing (for
equities
)
Real Estate (0% - 5%)
•
Exchange
listing
(for
equities
)
• Maximum ownership: 10%
• Risk limit: 1% tracking error
Ownership interest in equity markets
Percentage o
f
FTSE market cap
2,0 2,0
1,5 1,5
Europe Americas
Asia Total
1,0 1,0
0,5 0,5
0,0 0,0
1998 2000 2002 2004 2006 2008 2010
17
Source: Norges Bank
Return on the
Government Pension Fund Global
Government
Pension
Fund
Global
Per cent
15 15
10 10
0
5
0
5
-5 -5
Quarterly return
-15
-10
-15
-10
Quarterly
return
Accumulated annualised return
18
Source: Norges Bank
2000 2002 2004 2006 2008 2010
Management performance
Excess return, percentage points
2,5 2,5
1,5 1,5
0,5 0,5
15
-0,5
15
-0,5 Quarterly excess return
Accumulated annualised excess return
-2,5
-
1
,
5
-2,5
-
1
,
5
Accumulated
annualised
excess
return
19
Source: Norges Bank
2000 2002 2004 2006 2008 2010
Investments
in Spain
Investments
in
Spain
Value (EUR
millions)
Fixed income
millions)
Covered bonds 7,829
Government
bonds
3,171
Value (EUR
millions)
Voting rights
bonds
millions)
Telefonica 1,287 1,7 %
Santander 1,127 1,7 %
Banco
Bilbao
517
15%
Equity:
EUR 5.6 bn
80 com
p
anies
Banco
Bilbao
517
1
,
5
%
Iberdrola 411 1,3 %
Repsol 376 1,5 %
Inditex 228 0
,
7 %
p
,
20
Transparency of government funds
Transparency
of
government
funds
Fund (origin) Points, 2010 (per cent) Change from 2008
(percentage points)
Government Pension Fund
Global (Norway) 97 5
CalPERS (California) 95 8
Alaska Permanent Fund 92 0
ABP (Netherlands) 85 5
GIC (Singapore)
65
24
GIC
(Singapore)
65
24
Abu Dhabi Investment Authority 11 3
21
Source: Edward Truman
