Norway's Pension Fund Is Worth $1 Trillion

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Norway's state pension fund reached a monumental milestone of $1 trillion on Sept. 19 and is considered the largest in the world.

"The growth in the fund's market value has been stunning," fund chief Yngve Slyngstad said in a statement reported by CNN Money. "I don't think anyone expected the fund to ever reach $1 trillion when the first transfer of oil revenue was made in May 1996."

The fund has generated an annual return of 5.9 percent since January 1998, though that figure drops to 4 percent when considering management costs and inflation. In 2016, it clocked a 6.9 percent return, worth $57 billion. That comes out to over $190,000 for each of Norway's 5.2 million citizens.

The large fund in Norway was made possible by the country’s vast oil wealth. Its sovereign wealth fund owns, on average, 1.3 percent of every listed company in the world. It also owns a large real estate portfolio, including stakes in buildings at the world's most desirable addresses, such as Times Square in New York, Regent Street in London and Champs Elysees in Paris, reports CNN Money.

“What you see is that these are fairly new companies and they have grown to be big companies in a short span of time. Obviously when you come to the exchange and your shareholder base changes, there might be practices that you need to adopt,” Trond Grande, the oil fund’s deputy chief executive, explained to The Financial Times.

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The fund manager, Petter Johnsen, spoke to FT in 2014 about what makes Norway's fund successful:

First of all, the key objective is harvesting a market risk premium. Then, of course, we have a clear ambition based upon utilizing our fund characteristics -- long term, large, global, we are low cost -- to create excess return through stock-specific strategy, so bottom-up stock picking. The third component is active ownership, which is integrated into the equity investment unit. Finally, there has to be efficient implementation and creating a market risk premium through a diversified portfolio against a benchmark. It sounds simple, but there are a lot of complexities.

The fund is making sure to participate in decisions being made among its portfolio companies, such as tech giants like Amazon, Facebook, Alphabet and Apple.

A number of controversies involved Alphabet, the parent company of Google. The oil fund went against management recommendations six times, including over stock options, executive pay and a move to ensure each share has one vote.

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The U.S. is not in such a rosy position when it comes to its own pension programs. According to Business Insider, a report by credit-rating agency Moody found that U.S. local, state and federal governments are $7 trillion short in funding coming pension payments. Additionally, the U.S. is $20.4 trillion short in funding for retirees.

Sources: CNN MoneyBusiness Insider (2), Moody Credit Report / Featured Image: Alvoro Prieto/Flickr / Embedded Images: 401K/Flickr, Glenn Euloth/Flickr

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