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Thursday 20 September 2018
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Guess which fund returned U$131 Billion in 2017?

According to the Financial times, Norway’s oil fund posted returns in access of N$ 1.6 Trillion for the year 2017, a number which in my opinion is mind boggling. And this number talks to returns, not fund size. Allow me to provide context to this animal called the Government Pension fund Global – Norway, commonly known as the Petroleum/Oil fund of Norway.
Imagine a country with a population about double that of Namibia, with an estimated 5.2 million inhabitants, a country that in terms of its area size is 385,203 km2, compared to the Land of the Brave which boasts 825,615km2. This country, a little less than half the area size of Namibia, has the world’s the world’s largest sovereign wealth fund, surpassing powerhouses such as the Abu Dhabi Investment Authority, China Investment Corporation, Kuwait Investment Authority and the Saudi Arabia Monetary Authority.
Norway’s oil fund topped the U$ 1 Trillion mark in assets in late 2017, this Trillion dollar barrier had never been breached before. And to top it all off, the oil fund only started in 1996, a mere 22 years ago. This fund has been an extraordinary success, growing at a phenomenal speed to on average own 1.3% of every single listed company in the world. To put this in perspective, according to the statistics portal data as at end 2016, there were in access of 4,399 exchange traded funds (EFT’s) globally. As of June 2011, this was the largest ‘pension fund’ in the world, but it is not a pension fund in the conventional sense, as it derives its financial backing from oil profits and not pension contributions. According to the Norwegian Ministry of Finance forecasts, a worst-case scenario for the fund value in 2030 was U$ 455 billion whereas a best-case scenario would have the fund stand at U$ 3.3 trillion.
Yngve Slyngstad, the fund’s Chief Executive Officer was quoted saying, “I don’t think anyone expected the fund to ever reach $1tn when the first transfer of oil revenue was made in May 1996. Reaching $1tn is a milestone, and the growth in the fund’s market value has been stunning,”
Interestingly, the purpose of this fund was to help manage Norway’s oil wealth for it’s future generations by taking all revenues the state receives from petroleum and investing it in financial assets abroad.
At the end of 2016, more than half of the fund’s assets were due to the returns on its investments, approximately 45 per cent due to inflows from oil and gas revenues, and the rest due to currency movements. The fund has grown at a frightening pace, with its assets rising 13-fold since 2012. Fascinatingly, the oil fund first started by investing purely in bonds, however as at end 2017 held approximately 65% of its assets in shares. Quickly to define a share in layman’s terms, this is a unit in financial markets whereby companies issue ‘shares’ which are offered for sale to anyone wishing to purchase it to raise capital for the said company.
As a result of this humungous fund size relative to the fairly small population, this fund has been dominated by three key issues:
Whether the country should use more of the petroleum revenues for the state budget instead of saving the funds for the future?
Whether the high level of exposure (around 65% in 2017) to the highly volatile stock markets is financially safe?
Whether the investment policy of the Oil Fund is ethical?
Before I conclude, it would be an injustice if I did not reference our very own Namibian GIPF (Government Institutions Pension Fund), in comparison to the Norwegian ‘GIPF’. We proudly boast being Africa’s 4th largest pension fund with total assets under management in access of N$ 106 Billion, as at end October 2017 – an achievement we as all Namibians can be very proud of. South Africa is the largest African Pension fund, followed by Morocco and Nigeria. Out of interest, the South African Government Employees Pension Fund (GEPF) stood at approximately N$ 1.67 Trillion as at the end of 2017.
One would imagine all houses to have their own problems, and the absurd ‘problem’ that Norway faces is whether to revise the current 4% allocation of the fund’s value each year which is used by the government towards its budget, down to 3%. According to reports, the 4% allocation is too much as the fund continues to increase in value. Indeed the best problem I have ever heard of!




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