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Thursday, May 23, 2024

Oil Fund milestone fuels rare praise

Even critical Norwegian newspapers had praise for Norwegian politicians over the weekend, after the country’s enormous Oil Fund broke yet another record. “Congratulations!” editorialized Aftenposten, as the fund’s market value surpassed the dizzying figure equivalent to NOK 10,000 billion.

When this dizzying figure for the market value of Norway’s Oild Fund hit “10,” followed by 12 zeros on Friday, fund managers were delighted. By mid-afternoon on Monday, when this screen grab was snapped, the fund was worth more than an extra NOK 70 billion. ILLUSTRATION: Norges Bank Investment Management

The praise was doled out in several directions but first and foremost to the broad majority in Parliament who first established the fund in 1996. Norway’s oil revenues have been deposited into it ever since, to save them for future generations. Norway’s leaders saw that the sovereign wealth fund quickly dubbed “The Oil Fund” would be a good way of managing enormous wealth in a long-term manner.

In 2001 came the regulation, backed by former trade- and prime minister Jens Stoltenberg (now NATO chief) and embraced by politicians in Parliament, that strictly limits how much of the Oil Fund can be tapped on an annual basis to balance the government’s state budgets. Called the handlingsregel, it became as important as the fund itself and has forced self-discipline ever since. Government politicians initially could withdraw 4 percent of the value of the fund. That’s since been reduced to 3 percent because the fund got so big and the amount was so large.

“Every time our politicians are criticized for being irresponsible … we can think about how they also did this (create and protect the nation’s ultimate piggy bank),” Aftenposten wrote.

Managers applauded, too
Also winning kudos over the weekend was the unit of Norway’s central bank that’s responsible for managing the fund that quickly became one of the world’s largest. Norges Bank Investment Management (NBIM) has also advised Norwegian governments, while the value of the money deposted in the fund has tripled. The fund has generated an annual return of 5.9 percent since 1998, equal to another NOK 4,660 billion.

“Every time someone asks what we’re going to live off of, after oil, it’s tempting to answer that it will be the returns on the world’s largest fund,” Aftenposten editorialized. Right now it already means that government leaders can spend around NOK 250 billion (USD 28 billion) more than they would have at their disposition without the Oil Fund. Every sixth krone in the state budget comes from the Oil Fund and its earnings. “That’s really a gift to the politicians, and the people,” claimed the paper.

Norway’s weak krone currently boosts the krone-value of its oil that’s sold in terms of US dollars. For every dollar worth of oil, Norway now gets around NOK 9, compared to NOK 6 several years ago. Markets have also been strong since Norway’s Oil Fund was established, and it’s become a major investor on stock markets around the world. Most companies want long-term investors like the Oil Fund, which also must invest in a socially responsible way. The fund has given a relatively small country like Norway enormous clout internationally, and won the country respect, for its policies and its financial strength.

Oil Fund chief Yngve Slyngstad PHOTO: Berglund

Yngve Slyngstad, who took over as NBIM’s second chief in 2008, allowed himself to be a bit proud and impressed on Friday after the fund’s latest record was logged. “This is a job where you try not to allow any emotion,” Slyngstad told newspaper Dagens Næringsliv (DN), “but I do see this as an historic moment. It’s an incredible milestone. We had never imagined we would have achieved this.” Slyngstad noted how the fund “is bigger than I, everyone else who has worked for the fund and all our employers could ever have thought it would be.”

On a more sober note, Slyngstad added that the sheer wealth and growth of the fund bring with it “enormous responsibility.” What goes up comes down, and the fund like all others can log losses as well as gains. The past 10 years have brought almost nothing but gains, but Slyngstad says he can’t emphasize enough how the fund’s value can also fall, not least given all the uncertainty about the fossil fuel industry on which the fund is based.

Slyngstad and his staff generally have responded to stock exchange uncertainty and any falling share prices by buying more shares. He wouldn’t disclose the Oil Fund’s formula, but said the fund and its managers “must be prepared for big swings.”

They clearly are. Meanwhile, the returns keep clicking in. The ticker NBIM runs on its website that shows the fund’s ever-changing market value at any minute, had already risen by around NOK 70 billion since the milestone was passed on Friday. Berglund



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