The first ten years
This is the tenth Annual Report to be published by Norges Bank on the management of the Government Pension Fund – Global. In January 1998, the Bank created a new unit – Norges Bank Investment Management (NBIM) – and large-scale purchases of equities in the global capital market began in line with a new strategy issued by the Ministry of Finance and approved by the Storting (Norwegian parliament).
The average annual real return on the fund after management costs during the first ten years was 4.3 per cent. There was a nominal return of 7.0 per cent on equities and 5.1 per cent on bonds. In absolute terms, there was a total return of NOK 504 billion – including NOK 302 billion from equity investments, which accounted for around 40 per cent of the portfolio until 2007.
NBIM's results are measured relative to a benchmark portfolio defined by the Ministry of Finance. The average annual excess return during the first ten years was 0.40 percentage point. Active management did not increase the fund's market risk. These results were achieved at the same time as investing new capital of NOK 1 756 billion in the markets and building up the investment management organisation.
NBIM's most important roles are to invest new capital as cost-effectively and safely as possible in the capital markets, establish the strategic portfolio chosen by the capital's owner, and attempt to generate a slightly higher return through active management. Since the introduction of new Ethical Guidelines for the management of the fund in 2004, the exercise of ownership rights has also been a priority. In addition, NBIM provides input to the Executive Board of Norges Bank with its recommendations on investment management strategy to the Ministry of Finance.
In 2007, NBIM opened an Asian office in Shanghai. It now operates from four offices, the others being in Oslo, London and New York. This internationalisation process is also reflected in NBIM's workforce: its approximately 180 permanent employees hail from 20 different countries.
The nominal return on the Government Pension Fund – Global in 2007 was 4.3 per cent, which is below the average for the first ten years. NBIM's active management made a negative contribution for the first time. The negative excess return in 2007 was 0.22 percentage point.
This Annual Report presents NBIM's global investment management operations. In addition to the Government Pension Fund – Global, NBIM manages the bulk of Norges Bank's foreign exchange reserves and the Government Petroleum Insurance Fund. Special mention is given to work on exercising ownership rights, and there is a separate feature article looking back at NBIM's first decade.
We hope that this Annual Report gives the reader a good basis for assessing how Norges Bank conducts its investment management activities in global financial markets.
Governor of Norges Bank
Executive Director of NBIM