
How Norway spends its $882B global fund - punnerud
http://www.economist.com/news/business-and-finance/21707435-norways-global-fund-its-tough-small-democracy-run-worlds-biggest
======
kristofferR
"It is run frugally and transparently" is a dubious claim, at least according
to claims made on NRKs Folkeopplysningen (a show like Penn and Teller:
Bullshit, just better).

The fund spends a lot on being actively managed, one manager received ~$60
million in bonuses in 2010. However, they won't reply when people ask if
bonuses are actually financially beneficial.

[https://tv.nrk.no/serie/folkeopplysningen/KMTE50009215/seson...](https://tv.nrk.no/serie/folkeopplysningen/KMTE50009215/sesong-3/episode-2)
@ 28:30

~~~
charlesdm
$60m isn't exactly the real cost to the government, though? Assuming this
asset manager is a Norwegian resident, he'll pay a ton of tax (income or
corporate tax, VAT, stamp duty on property purchases, capital gains, etc etc)
on that money, and eventually given enough time, most will just flow back to
the government. The house always wins..

Also, it depends on how much he brings in. For example, there are US based
asset managers with private funds that generate 20-30-40% per annum, for over
20 years. If the performance is there, they should get compensated well for
that. Otherwise, why put up with the stress of managing billions of dollars?

~~~
finstell
_> 20-30-40% per annum, for over 20 years_

It is impossible, at least continuously. Nobody has ever managed to do that.
You'd be lucky if you could beat the market by a few points on average over a
20 years time period. Compensation well for good performance does not make
sense when you aren't penalized for losses.

~~~
avn2109
>> "...impossible..."

[https://en.wikipedia.org/wiki/Renaissance_Technologies](https://en.wikipedia.org/wiki/Renaissance_Technologies)

"...famed for one of the best records in investing history, returning more
than 35 percent annualized over a 20-year span..."

~~~
tormeh
People have done it before. It has always turned out to be luck. Fantastic
track record until they cease being lucky.

So, cynicism and economic orthodoxy aside, that sounds like a really cool
company. Has anyone tried just tossing a big dumb neural network on stock data
and investigated whether it can make money? It sounds very obvious, but a
quick googling returns little. But I guess the investment industry is pretty
secretive by nature.

~~~
hiddencost
> Has anyone tried just tossing a big dumb neural network on stock data and
> investigated whether it can make money?

... yes.

~~~
boulos
One of our Solutions Architects wrote this up for amusement:
[https://cloudplatform.googleblog.com/2016/03/TensorFlow-
mach...](https://cloudplatform.googleblog.com/2016/03/TensorFlow-machine-
learning-with-financial-data-on-Google-Cloud-Platform.html)

------
cs702
A little over decade ago, when Norway's fund was called "the Petroleum Fund"
and had "only" $147B, an article in Slate magazine explained what was special
about it:

 _" Norway has pursued a classically Scandinavian solution. It has viewed oil
revenues as a temporary, collectively owned windfall that, instead of spurring
consumption today, can be used to insulate the country from the storms of the
global economy and provide a thick, goose-down cushion for the distant day
when the oil wells run dry."_[1]

Since then, the fund has grown _six_ -fold.

[1]
[http://www.slate.com/articles/business/moneybox/2004/10/avoi...](http://www.slate.com/articles/business/moneybox/2004/10/avoiding_the_oil_curse.html)

~~~
tim333
It's kind of funny that the classically Scandinavian solution was mostly the
work of an Iraqi geologist [http://www.cbc.ca/radio/thesundayedition/the-
public-god-foru...](http://www.cbc.ca/radio/thesundayedition/the-public-god-
forum-farouk-al-kasim-the-man-behind-norway-s-oil-wealth-listener-mail-
documentary-the-tracks-1.2905028/farouk-al-kasim-the-man-behind-norway-s-oil-
wealth-1.2905029)

~~~
distances
I think similar ideas are found all over the world, but few countries outside
of Northern Europe have the necessary political responsibility and lack of
corruption to actually execute successfully on these ideas.

~~~
patrickk
In Ireland we had a sovereign wealth fund for pensions, called the National
Pensions Reserve Fund.

The government raided it to pay for budget shortfalls caused by offering a
blanket, virtually unconditional guarantee to (private sector) bank debts,
even unsecured bank debts, caused by the collapse in the Irish property market
in 2008. The insane loans issued were made whole by the taxpayer at enormous
cost to the wider economy. Of course, very little of those involved actually
went to prison, although some higher ups in Anglo Irish (described as the
worst bank in the world, even worse than Icelandic banks) were eventually,
after many years, sent to prison [2]. The CEO of Anglo was even acquitted by a
jury!

 _" The NPRF’s asset base had increased to over €22 billion in 2009. However,
following the economic and banking collapse, its assets have been diverted as
successive governments raided it to fund programmes or help meet the State’s
fiscal commitments during the crisis."_

This is a long way of saying that even in Northern Europe incompetence and
fraud is possible. I wish we had the competence and level of societal trust
the Norwegians have.

[1] [http://www.irishtimes.com/news/politics/national-pension-
res...](http://www.irishtimes.com/news/politics/national-pension-reserve-fund-
should-now-be-revived-says-brian-hayes-1.2119297)

[2] [http://www.irishtimes.com/business/financial-
services/anglo-...](http://www.irishtimes.com/business/financial-
services/anglo-trial-three-ex-bankers-jailed-over-7bn-fraud-1.2738637)

~~~
tim333
The Norwegians also had a very sensible approach to their banking crisis
compared to the US and Ireland:

>There are five features of the Norwegian resolution I would like to
highlight:

>Private solutions were explored before the government intervened.

>Share capital was written down to zero before committing public funds.

>The government acted swiftly to limit contagion, but did not provide a
blanket guarantee. Liquidity support was given to illiquid, but solvent
institutions.

>The government did not use an asset management company - as the other Nordic
countries did later on.

The "Share capital was written down to zero before committing public funds."
seems smart. At least if you wipe out the shareholders it's an incentive to
behave better the next time.

------
atheg33
As a Canadian I feel so cheated learning about Norway's Oil Fund.

Our government hasn't hardly saved a dime of our Oil Income.

We have been taking a small cut of the hundreds of thousands of barrels of oil
we have been producing daily for the past 100+ years and spending it as fast
as we possibly can.

>Most of the oil companies exploring for oil in Alberta were of U.S. origin,
and at its peak in 1973, over 78 per cent of Canadian oil and gas production
was under foreign ownership and over 90 per cent of oil and gas production
companies were under foreign control, mostly American. [0]

[0]
[https://en.wikipedia.org/wiki/Petroleum_production_in_Canada...](https://en.wikipedia.org/wiki/Petroleum_production_in_Canada#History)

~~~
gaius
_We have been taking a small cut of the hundreds of thousands of barrels of
oil we have been producing daily for the past 100+ years and spending it as
fast as we possibly can._

Right, but the money was spent on _something_ tho'. So the question - and I
don't know the answer - is whether having that thing, at the time, was worth
more than having something else, in the future.

~~~
atheg33
It just seems like if we had of kept the money and re-invested it... like
Norway did... that we would have been much better off in the long run.

~~~
gaius
We could ask the same question in the UK. Successive governments believed in
using the money to lower taxes instead. Whether that was right or wrong no-one
can really say - but consider that around the time the North Sea came online,
income tax was as high as 83% and tax on income from investments was 98%.

[http://www.spectator.co.uk/2008/04/why-hasnt-britain-got-
a-s...](http://www.spectator.co.uk/2008/04/why-hasnt-britain-got-a-sovereign-
wealth-fund/)

------
harryh
882 B / 5.2 Million ~= $170k for every citizen of Norway.

At 4% a year that's $6,800 each in annual income. Not bad!

~~~
dogma1138
Not bad, but not enough to cover the current levels of household debt in
Norway, while a large portion of the debt is tied to mortgages the mortgage
debt in the Norway have been increasing faster than income for quite a few
years now. [http://www.tradingeconomics.com/norway/households-debt-to-
gd...](http://www.tradingeconomics.com/norway/households-debt-to-gdp)

This isn't a problem unique to Norway, Norway is just one of the biggest
offenders, even in the Nordic countries there is a trend of creating a new
generation or class of indentured citizens.

Many EU countries need to look at germany and start reducing housing prices,
one of the main contributors to Germany's low household debt is a 10 year cap
on mortgages.

Countries like Sweden and Norway just now starting to cap it, Sweden capped
the mortgage term to 105 years (no this isn't a typo) this year and the
current average mortgage term in Sweden is still over 140 years, and Norway
isn't much better off (It was slightly higher than Sweden IIRC I just can't
find a source atm).

While the Nordic countries take pride in their model the current economics are
pretty bad under the surface, you have a combination of inflated housing
prices, extreme housing shortages, and mortgages that can span over 3
generations.

To some extent the Nordic model isn't a choice it's an outcome of the economic
policy to the point where a lot of people that appear to be wealthy are
actually in dire debt and dependant on the state.

[http://www.telegraph.co.uk/personal-
banking/mortgages/sweden...](http://www.telegraph.co.uk/personal-
banking/mortgages/sweden-cuts-maximum-mortgage-term-to-105-years-the-average-
is-14/)

~~~
semi-extrinsic
When you say "140 year mortgage term", what exactly are you talking about?
Effective term or something? Because the banks only offer a choice between 20,
25 and 30 year mortgage terms usually.

~~~
cowsandmilk
(a) in the 1990's, many banks did offer 50 year terms.

(b) sweden has a lot of interest-only mortgages. If you look at the rate they
are being repaid, it represents a repayment period of 148 years.[1]

[1]
[http://www.fi.se/upload/43_Utredningar/20_Rapporter/2013/bol...](http://www.fi.se/upload/43_Utredningar/20_Rapporter/2013/bolan_2013eng_2.pdf)

~~~
semi-extrinsic
Norway's been tightening the mortgage belt for years now. You can only borrow
less than 85% of the purchase price of the house, excluding fees. That was set
in 2012 IIRC. And now (from January 2017) there will be a complete ban on
interest-only mortgages (even just for limited time periods), and a hard cap
at total loan amount (including also student/car loan etc.) for each family
not exceeding 5x total gross income.

Source: am planning to buy a new house, had a meeting with my bank man two
weeks ago.

------
netcan
Norway's oil money story is one of the weirdest. Are there any examples in
history where a country has saved up such a big stash? Are they planning to
retire young, as a nation?

~~~
webbore
I live in Calgary, Alberta which is pretty much the exact counterpoint to
Norway with a very similar historical starting point (size, population,
dynamics). It doesn't matter who's in power, all our governments spend like
drunken sailors on shore-leave, no sales tax to even out the boom/bust (and
counter low-ish taxes), A savings fund that is now empty going into an
incredibly rough period.

I'm not says one is better than the other - Norway looks great right now, but
didn't when I visited ~10 years ago and my Subway "value" meal cost over $25
CDN - just an interesting counterpoint.

I keep waiting for that manufacturing "bump" from Eastern Canada we were
promised from a sinking dollar...

~~~
digi_owl
> I'm not says one is better than the other - Norway looks great right now,
> but didn't when I visited ~10 years ago and my Subway "value" meal cost over
> $25 CDN - just an interesting counterpoint.

Careful with such examples. Local prices are first of all adjusted for local
wages, and second of all the NOK exchange rate is just nasty.

------
Lythimus
Is there an index or ETF which follows this pension fund's investments?

~~~
anthonybsd
No. The up-to-date composition of the fund is not public nor should it be due
to the very real possibility of moving the markets in unintended ways.
However, they do publish annual reports of investments which you can access on
their website. Here's a 2015 one:
[https://www.nbim.no/contentassets/70de238e3f6747228b76a99ec2...](https://www.nbim.no/contentassets/70de238e3f6747228b76a99ec24c53ed/annual_report_2015_web2.pdf)

------
terda12
Visiting Norway, I always thought it is kind of a weird country. On one hand
it's one of the richest countries in the world. On the other hand, I've seen
so many young Norwegian women work hard cleaning toilets and hotel rooms. Such
jobs would be considered "low rung" at in the US but in Norway they treat
their low rung jobs as something to be proud of.

~~~
seizethecheese
Someone has to clean the toilets. You're expressing shock that Norway doesn't
have a racial underclass like latinos or blacks in the US? Kind of a weird
thing to comment on, Norway is a very homogenous country.

~~~
kinkora
Did the OP edit the original comment? I don't see any mention of race and the
OP is just stating he is impressed by how Norwegian women take pride in doing
even the most menial of jobs (which is something I noted too when I was
there).

Just found it strange how did you come to the conclusion of a "racial
underclass" when there was no mention of it so i was wondering if it is an
american thing.

Note: While not as multi-cultural as the US of course, Norway is not
exclusively a "homogeneous" society and in fact, I just noted that almost 1/3
of my Norwegian friends are not "Nordic born". You obviously haven't been
there if you made that conclusion yourself.

~~~
meric
Who else would work those jobs if not Norwegians? It's implied if they didn't
another group would do it.

------
shardinator
Related to a lot of discussion comments, I highly recommend "A Random Walk
Down Wallstreet" by Burton Malkiel. [https://www.amazon.com/Random-Walk-Down-
Wall-Street/dp/03933...](https://www.amazon.com/Random-Walk-Down-Wall-
Street/dp/0393330338)

------
known
You can't beat [http://www.bloomberg.com/news/features/2016-05-30/the-
untold...](http://www.bloomberg.com/news/features/2016-05-30/the-untold-story-
behind-saudi-arabia-s-41-year-u-s-debt-secret)

------
rer
In the "Top of the World" graph in the article, there's a dip for Saudi
Arabia. Does anyone know why?

~~~
hjnilsson
Saudi Arabia significantly cut the oil price (which caused the global dip),
and is since making up the difference by withdrawing from the oil fund.

The long term goal here is not entirely clear, but it mostly seems like a way
to hurt the Russian economy and the fracking industry.

~~~
forgetsusername
> _Saudi Arabia significantly cut the oil price (which caused the global dip)_

Saudi Arabia can't cut the price of oil. They can increase or decrease their
own (albeit large proportional) supply.

------
rogaha
I see lots of comments talking about the return on investment (~4% YoY) and
the ~$60M in bonuses, etc. But I don't see anyone questioning why there is so
much money invested in other companies outside Norway.

I'm curious to know: 1) Why do we have a savings Fund with double of the
annual GDP? Should we have a limit? Why the excess is not invested locally? 2)
Is there an existing plan to define when the money will be directed to the
Norway economy? The current GDP per capita is around $68K which doesn't seem
that much compared to the amount of money in the country's saving account. Why
not invest in education and/or technology? 3) Why there are a few people
earning so much money (e.g. ~$60M bonus) to manage the country's assets? Is
the real purpose to make money or save the money for future generations?

