The largest fund on the planet.

norwegian_flag_platformcopyI recommend before reading this post that you zoom out (“cmd-” on a mac) as the text will be easier on the eye.

On Monday I was accepted into The Bright Network, a forum place for ‘young professionals’ to discover new opportunities and network with companies and each other. I received a phone call on Monday morning to confirm a few details and to engage in a small interview about my future career plans. Having mentioned to him that I had developed an interest in a particular area of finance, the person from Bright suggested I head down to the Bright Festival the next day in London to learn a bit more about that potential career route. Being rather bored in the build up to freshers, and eager to fill my time with something of use, I bought a ticket that evening and went to the Festival the next day.

The Festival itself was good, a sort of glorified graduate careers fair with lots of recognisable names from Morgan Stanley to Red Bull and Microsoft. It provided me with a great opportunity to network with some of the companies I was interested in and get an idea of the sort of candidates they look for on their internship programmes. Aside from the careers fair Bright had also organised some lectures/conferences going on about certain industries and companies. Although I profess I cannot remember which talker mentioned this, I was told one fascinating piece of information that shines a fantastic light on Norway and North Sea Oil.

The Norwegian Government has the largest fund on the planet.

When North Sea Oil (NSO) was first discovered the Norwegians set up a Pension fund where they split a portion of the surplus revenue from NSO. This fund has now become the largest fund on the planet, holding 1% of total equities worldwide, boasting a size of $729.2bn (31st March ’13) and also being the largest holder of european stock at 1.78% of total EU stocks.

When I discovered this the first thought I had was “Why the hell haven’t the Brits done this?”. Sure enough if we had the foresight that the Norwegians had about providing for their future generations we would be sitting on a hefty sum of money. Instead we used the money to prop up trade unions and industries that were failing and have subsequently now failed (i.e. mining).

What a shame.

But needless to say I won’t let this deter from the fact that the Norwegians have done a fantastic job. Data from the Norwegian ministry of finance shows the best and worse case scenarios for the fund in 2030:

Worse: $455bn
Best: $3.3tn
Base (expected): $1.7tn

This fund has real potential to grow, and grow big. With 60% of it’s stock now in equities (up from 40%), we could be seeing some big gains, especially if a global recovery is on its way. The fund also follows an ethical code, something I’m really impressed at, which means companies such as British American Tobacco (due to tobacco production) and BAE systems (due to producing nuclear systems for the French government) are excluded from the portfolio.

Let me know what you think about ‘The Oil Fund’. Do we still have time in the UK to salvage surplus income from NSO to create our own, or will the Scottish get independence and claim it first?

-Ed @Breadeconomics


3 thoughts on “The largest fund on the planet.

  1. I’m not sure it is in the U.K.’s interest to tie pensions so closely to equities. $1 trillion across 5 million citizens can go a long way, even if it suffers short term slumps in the stock market. $1 trillion spread across 60 million doesn’t have the same flexibility, that flexibility is lost regardless of whether its equities, rates, credit or commodities. The Norwegians themselves are scared about this fund becoming too large and are looking to split it into 3. If the U.K. was going to develop something similar (ultimately unlikely with current NSO supplies, but possible with Falklands oil???), there would need to be a lot of funds…. IMO the U.K. should probably focus it’s economists on running down the deficit, national debt and establish some sustained, and sustainable economic growth before it begins creating mega trust-funds. On the flipside, with all those funds needing interested workers, a budding economist wouldn’t have to peruse many graduate fairs…

    1. Thanks for your comment. I don’t entirely think its a bad thing to tie pensions to equities – in the long run they deliver decent returns and can be quite safe providing the portfolio has a good degree of diversification. Apart from specialist funds I can’t see a fund that holds more then $10bn not having a degree of equity exposure. Furthermore, adding to my comment about the ethical practices, the fund is clearly being run in the best interest of the Norwegian people and therefore the fund managers are much more unlikely to take such speculative movements with their equity purchases.

      Great you’ve brought the UK into this; my ideal situation, as mentioned above, would be that the surplus revenues that the Government receives from NSO would be put into a fund and kept for the future. I don’t think there is any issue with the amount of funds, the fund itself will grow and the time-period we are talking about is one generation or more – that’s a lot of compounding. It would mean less to us, in terms of per capita, then to the Norwegians – but I love the fact they have a long-term mindset and the want to use funds from a project, which is environmentally bad, to help the future generations who are likely to be most harshly hit by after-effects.

      I haven’t had much on-hands experience, but these funds often don’t require anymore then 2 or 3 people to run. Some of the largest funds in Britain (notably from the colleges of Oxford and Cambridge) are just run by one person. The benefits to the future generations would far outweigh the employment of some economists to get the ball rolling. To be honest I wouldn’t be surprised if it was run for free by some economists looking for a prestigious position and the aim to do good.

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