BI professors to assess the equity allocation of the Oil Fund

15 January 2016

Professors Hilde C. Bjørnland and Espen Henriksen are part of a newly appointed government committee assessing the equity portion of the Government Pension Fund Global (GPFG), colloquially referred to as the Oil Fund.

According to the committee’s mandate, they shall advise the Ministry of Finance on the equity portion in the benchmark portfolio of the USD 800 Billion GPFG. As of today, the allocation to equities is 60 percent.

- The aim of the GPFG’s investments is to get a high return within a moderate level of risk. An important part of our mandate is therefore to analyse the expected risk and return in the Fund for different equity portions, and then make a recommendation on the equity portion, says Hilde C. Bjørnland, Professor at the Department of Economics.

Professor Hilde C. Bjørnland (Photo: Torbjørn Brovold)

The inflows are decreasing
The inflows to the Fund from petroleum revenues have until now contributed most to the increase in the market value of the GPFG.

- Going forward, the inflows will gradually be smaller, making the accumulated returns on the GPFG’s investments relatively more important for the increase in the market value of the Fund. In that way, the accumulated returns will also increasingly affect how much the politicians can extract from the fund (through the spending rule) without preying on capital. It is therefore important to have a good knowledge of the trade-off between the expected return and risk, and I look forward to contributing to this important work, says Bjørnland.

Challenges on and beyond the current research frontier
- Risks and expected returns of the GPFG are effectively determined by the strategic benchmark portfolio. The strategic challenges facing the management of the GPFG are on and partially beyond the current research frontier of macroeconomics and finance, says Espen Henriksen, Associate Professor at the Department of Finance.

Among the questions that must be answered in order to properly assess the strategic allocation of the GPFG are such as e.g.: Why do investors demand so much higher expected returns for investments in stocks, long government bonds, and corporate bonds than on short bonds? How can we assess an individual's or a country's capacity to carry financial risk and take losses?

- The questions we face are, in other words, the same questions as leading researchers around the world are working on. Contributions that move the research frontier forward may be of immediate practical relevance to the investment strategy of the GPFG, says Henriksen.

Associate professor Espen Henriksen (Photo: Torbjørn Brovold)

The committee is composed of a number of prominent individuals in academia, industry and politics, headed by former professor at BI Norwegian Business School Knut Anton Mork. The committee will present its report to the Ministry of Finance by October 15th,, 2016.

The members of the committee: 
Knut Anton Mork (committee chair), Senior Economist, Handelsbanken, and Adjunct Professor, NTNU
Harald Magnus Andreassen, Chief Economist, Swedbank
Hilde C. Bjørnland, Professor of Economics, BI Norwegian Business School
Harald Espedal, investor, former CEO of Skagen Funds
Kristin Halvorsen, director, former Minister of Finance
Espen Henriksen, Associate Professor of Finance, BI Norwegian Business School
Sigbjørn Johnsen, County Governor Hedemark, former Minister of Finance 
Kari Olrud Moen, Executive Vice President DnB
Karin Thorburn, Professor of Finance, Norwegian School of Economics (NHH)

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