Norway Central Bank Chief Warns of Meddling With Wealth Fund

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Norway’s central bank governor warned politicians against meddling too much with the country’s massive sovereign wealth fund and of overspending its oil wealth.

In his annual speech to the nation’s political and business elite on Thursday, Norges Bank Governor Oystein Olsen renewed warnings that politicians should resist micro-managing the $1.2 trillion sovereign wealth fund, the world’s biggest. His comments come after a series of political initiatives over the past years to alter the fund’s mandate on issues ranging from climate change to gambling.

“The capital is to be invested with one -- and only one aim: the highest possible return at an acceptable risk,” Olsen said, according to a transcript of his speech. “If there were several different objectives, they would have to be weighed against each other. That would be a demanding task for an investment manager.”

The leader of Norway’s opposition Labor Party, the biggest political group in the country, dropped a bombshell last year when he said the fund should be viewed as a “political tool” and focus more on green energy. The fund itself already invests according to a broad set of ethical guidelines, and some politicians and bureaucrats have voiced concerns it is being perceived as increasingly activist.

Olsen was widely interpreted as responding to Labor leader Jonas Gahr Store, who could take over as prime minister after next year’s election according to current polls. Store on Friday said that he had merely been stating the obvious, but doubled down on his comments.

“There isn’t one fund in the world today where the board and the owners aren’t discussing what climate change means, what climate risk means, and how we can contribute to the emergence of renewable energy and new technology,” he told broadcaster NRK.

The fund, which is managed by a unit of the central bank, was set up in the 1990s to help the oil rich nation avoid economic overheating by channeling its income from fossil fuels into investments outside its borders. Those investments -- in equities, bonds and more recently real estate -- have brought in such vast returns that the fund now amounts to more than 10.7 trillion kroner ($1.2 trillion).

Fiscal Rule

The fund’s rapid rise, especially in recent years, has given Norwegian governments greater leeway although spending remains limited by a self-imposed cap of 3% of the fund’s value each year. Oil spending surged in the decade through 2019 to 235 billion kroner, according to the government’s latest estimates.

The fund’s rise is also a reminder of how quickly things can shift, Olsen warned. A stock rout comparable to the one in 2008 would reduce its value by almost 30%, he said.

There’s no alternative to Norway’s fiscal spending rule as a long-term guideline, but politicians should beware of using it too literally on a year-to-year basis, Olsen said in an interview ahead of the speech, in which he qualifies the current spending level as “high.”

“3% of something that fluctuates a lot isn’t the best guidance for fiscal policy on an annual basis,” he said. “The fiscal rule doesn’t play the same role as before. Now it’s more a question of discretion.”

Big Tech

One threat to the fund’s value is a “downward potential” for its holdings in the world’s biggest technology companies, which could be the target of higher taxes, Olsen said. The fund’s two biggest stock holdings at the end of September were Microsoft Corp. and Apple Inc., accounting for $20 billion alone. Low interest rates will also catch up with the fund’s bonds as they mature, after first boosting the securities’ value, he said.

See what Olsen said in last year’s speech

(Updates with Labor comment from fifth paragraph)

To contact the reporter on this story: Mikael Holter in Oslo at mholter2@bloomberg.net

To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net, Stephen Treloar, Nick Rigillo

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