Folketrygdfondet, which runs the smaller, domestic and Nordic investment side of Norway’s huge sovereign wealth fund, has come out with a recommendation that the government sets its planned annual withdrawals at a level of 3%.
This follows a decision by the government published in April’s annual white paper on the SWF to start taking money out of the Government Pension Fund Norway (GPFN) for the first time – mirroring the way the larger Government Pension Fund Global has long contributed to the state budget.
The change is being brought in for the GPFN because the NOK365bn (€32.2bn) fund has grown to such a size that it risks owning too large a proportion of companies on the Oslo Stock Exchange.
Folketrygdfondet said in a statement that in response to the Ministry of Finance’s request in the white paper for it to investigate a simple, mechanical rule for withdrawal, it was recommending an annual withdrawal of 3%.
That level of annual withdrawal corresponded to approximately NOK11bn based on the fund’s capital at the end of the first quarter of 2024, the organisation said, adding that the withdrawal model was expected to come into force in 2025.
Kjetil Houg, chief executive officer of Folketrygdfondet, said: “We are satisfied that we’ve created great value for the community, which will now contribute directly to funding welfare.
“Our goal will still be the highest possible return after costs, for both current and future generations,” he said.
In the statement released last week, Folketrygfondet said it estimated a future real return of 3.4% for its benchmark based on an analysis of forward-looking market prices.
In 30 years’ time, the organisation said, the withdrawal model would bring the GPFN’s ownership on the Oslo Stock Exchange down to 9.7%, from today’s 10.8%.
“Over time, this will help to deal with the ownership proportion challenge in Norwegian companies, but must be combined with other measures if the market development turns out to be less favourable than assumed,” Houg said.
The problem of the domestic SWF’s increasing ownership of Norwegian listed companies has been under debate for some time.
Back in December 2019, Folketrygdfondet’s recommendation was to increase the proportion of its equity portfolio that was invested in Sweden, Denmark and Finland, and correspondingly reduce the weighting of its Norwegian portfolio.
One plan to have come out of the debate that is being taken forward is the establishment of a new state asset management unit, under Folketrygdfondet’s management, in the country’s far northern city of Tromsø.
That proposal is currently being processed by Norway’s parliament, the Storting.
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