NORWAY - The NOK1.5trn (€180bn) Norwegian Government Pension Fund is reviewing its "low return volatility" investment strategy, says the central bank.

"The investment strategy has so far aimed at low return volatility, perhaps to a larger extent than is reasonable for a fund that is meant to be permanent," said Svein Gjedrem, governor of the fund's manager Norges Bank.

"The strategy is currently under review by the Ministry of Finance, and there may be changes under way." The Government Pension Fund is the former Petroleum Fund.

Knut Kjaer, chief investment officer at Norges Bank Investment Management (NBIM) confirmed that NBIM is advising the fund. But he could not say if any action has already been taken by the Ministry of Finance.

Speaking at panel discussion in Singapore about the challenges of managing financial wealth in a public sector environment, Gjedrem noted the role of active management in the fund's investment operations.

He said: "We believe that the search for excess return has had a strong disciplinary effect on the organisation with a view to controlling both market and operational risk, and to ensure that all inside and outside suppliers do exactly what they are paid to do."

He added that since NBIM was set up in 1998, there has been just nine quarters out of 34 with returns lower than the benchmark.

Gjedrem said the Norwegian government receives a bulk of the $700bn revenues generate from petroleum extraction in the North Sea, which it then channels into the pension fund.

"Annual spending from the fund is subject to a spending rule, whereby the government commits to limit spending," he said.

"Over time spending should not exceed the estimated expected real return of the fund's investments, set at 4% per year. This implies that the fund is expected to become a permanent savings account."

IPE reported today that BT's pension fund has made an opposite move to the Norwegian fund by ditching a large share of its UK equity portfolio.

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