Norway might not be the first country to think of as an oil and petroleum giant, however, the country ranks 11th among all petroleum exporting countries. Given the high fluctuation of oil prices alongside the remarkable revenues from this sector, the Scandinavian country opted for an unusual yet farsighted approach in maintaining this wealth: establishing a federal fund to invest all of this surplus into. 

This oil fund, more commonly referred to as the `Government Pension Fund Global´, manages over US$1.35 trillion in assets and is currently worth a stunning $250,000 per Norwegian citizen. This way, the fund contributes to increasing savings of revenues from the petroleum industry and serves as means to retaining much of the country´s welfare today for future generations.  

In their analysis, Bauer and his colleagues employ several analysis mechanisms from simple performance models to modern risk evaluation techniques. As a central tool for their assessment, the authors employ the `Tinbergen Rule´, named after Dutch Nobel prize laureate Jan Tinbergen (1969). The rule - stating that every economic objective requires one independent policy instrument - is applied to different contexts in the investment process.

In addition to this, the review also explicitly discusses the interdependency between the Ministry of Finance as the ultimate fund holder and the investment management conducted by the `Norges Bank´ (Norwegian Central Bank).

Advice

The researchers advised the Ministry of Finance to make a clearer mandate in which priorities regarding strategic investment choices and regarding the prioritization of active management versus active ownership objectives are decided.

Rob Bauer is Professor of Finance (chair: Institutional Investors) at Maastricht University School of Business and Economics. His academic research is focused on pension funds, strategic investment policy, mutual fund performance, responsible investing, shareholder activism and corporate governance. Rob publishes regularly in professional and academic journals and is a frequent speaker on national and international conferences. Next to his profession at SBE, Rob is also Director of the European Centre for Corporate Engagement (ECCE) at Maastricht University and Executive Director of the International Centre for Pension Management (ICPM) in Toronto. Rob is also the founder and managing director of Rob Bauer Consultants in which he advises and supports institutional investors on topics related to strategic investments.