News of planned asset sales and deployment from Norway’s Government Pension Fund Global (GPFG), the world’s largest sovereign wealth fund with over US$1 trillion of assets, help clarify the sometimes vexed question of what these funds are for. Sovereign wealth funds have a whole range of mandates, and the terms of these are sometimes as vague as their holdings are large. It definitely helps to get a few data points now and again.
In Norway’s case, the fund’s aim, according to its website, is “to ensure responsible and long-term management of revenue from Norway’s oil and gas resources in the North Sea so that this wealth benefits both current and future generations” and “to help finance the Norwegian welfare state for future generations”.
This month, the country’s revised budget revealed that the Norwegian government plans to withdraw $37 billion from the fund, the largest amount to date, to finance a gap in the national accounts caused by the coronavirus crisis and the unprecedented drop in oil prices. The figure far exceeds the GPFG’s annual revenue generation through dividends and interest payments.
It’s obvious that the GPFG exists to fulfil a pretty broad remit. Finance Minister Jan Tore Sanner said publicly that the funds would be used “to avoid an even sharper downturn, and to help healthy companies through the crisis so they can create jobs and growth”.
The principle of a national prudential fund is all well and good so long as the use of it is equally prudential. If they exist to cushion the blow of emergencies like the coronavirus crisis, let’s at least be clear on that.
Last month, representatives of key Asian and Middle Eastern sovereign wealth funds including China Investment Corp., Singapore’s GIC, Korea Investment Corporation, Abu Dhabi’s Mubadala, and Saudi Arabia’s Public Investment Fund, held an online meeting at the invitation of the Russian Direct Investment Fund. Positive noises coming out of the meeting included a commitment to expand cooperation to help combat the impact of the crisis. However, concrete actions to date appear to be few and, above all, uncoordinated.
It may be that sovereign wealth funds’ responses worldwide will be as disparate as their structures and underlying jurisdictions. Sovereign autonomy and domestic political priorities, I suspect, are likely to be the final deciders in which of these national reserves gets raided and for how much, and what gets done with the resulting cash.