It may surprise some people to read that the largest sovereign wealth fund in the world belongs to one of its less populous countries. Rather than spend the income and taxes from its oil and gas reserves as they were earned, Norway decided to put them into a sovereign wealth fund. Since its launch in 1996 this fund has risen to more than £460bn in assets, and holds over 2% of all the listed shares in Europe.
The aim of the fund is to extend the benefits of the country’s oil and gas reserves until long after they have run out. With a long-term strategy and the scale to influence company management, the fund had the ability to sit tight through the volatility during the 2007-09 period and benefit from the subsequent recovery.
However, as the size of the fund has increased, combined with a new government coming to power, a debate has restarted over how to deal with the fund and its profits in the future. Some argue that profits would be better spent on infrastructure or research within Norway; an argument countered by those who believe extra spending risks overheating the domestic economy. Others believe the fund itself is too big and needs to be split into several smaller and more manageable funds. Given the size of the fund any significant changes to the fund’s asset allocation or investment style could be worth keeping an eye on.
These views may differ from those of Henderson fund managers. The information should not be construed as investment advice. Before entering into an investment agreement please consult a professional investment adviser.
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