The fund has also awarded three new external fixed income mandates to Putnam Advisory, Insight Investment Management and four new equity mandates to Alliance Bernstein, GLG Partners, T. Rowe Price and Janus Capital Management.

“The new department was established because the funds have grown very strongly in recent years. The fund is about to invest in new markets and new countries and to use more complex tools in its investment procedures. It is therefore time to make the management of the fund more sophisticated and efficient,” Martin Skancke, director general of the asset management department, told nrpn.

The newly established department was part of the finance ministry’s economy department and consists of a staff of seven people. But, according to Mr Skancke that number is set to grow. “By the end of 2007, we expect the number of team members to double. The plan is to have approximately 10-15 experts working for the new operation,” he says.

The Government Pension Fund consists of the Government Pension Fund – Global, which invests solely overseas and was previously known as the Petroleum Fund, and the Government Pension Fund – Norway, which invests in the Norwegian markets. Although the fund’s formal owner is the ministry of finance, which makes the asset allocation decisions, operational management of the fund is delegated to Norges Bank.

The fund invests 59.5 per cent of its portfolio in fixed income and 40.5 per cent in equities and over the first six months of 2006 its market value increased from NKr1399bn to NKr1,505bn. By 1 January 2008 the fund is estimated to have reached NKr2041bn.

A fall in equity and bond prices, however, caused the return of the global fund to drop to -1.55 per cent the first six months of the year. Equities yielded a return of -3.31 per cent and fixed income -0.30 per cent. The result was 0.10 percentage points lower than the benchmark defined by the ministry of finance.

Nevertheless, Svein Gjedrem, governor of Norges Bank expects the government pension fund to grow comfortably over the next few years. “There are prospects of strong growth in the Government Pension Fund - Global. Given our assumption for oil price developments ahead, spending in line with the expected real return on the fund implies that the structural, non-oil deficit may increase by close to NKr15bn (€1.84bn) at 2006 prices in both 2008 and 2009,” adds Mr Gjedrem.

RC

THE GOVERNMENT PETROLEUM FUND- GLOBAL

• At the end of the second quarter of 2006 the market value of the fund’s combined portfolio of securities was NKr1,505bn.

• Return on international currencies was -1.55 per cent for the entire fund, -3.31 per cent for the equity portfolio and, -0.39 per cent for the fixed income portfolio.

• The market value of the fund’s fixed income portfolio is NKr895.1bn. Ninety per cent of this is managed internally.

• The market value of the fund’s equity portfolio is NKr609.9bn. Sixty-two per cent of this is managed internally.

• In total 22 per cent of the fund is managed by external managers.

• On 30 June 2006 the actual benchmark portfolio consisted of 40.6 per cent equities and 59.4 per cent fixed income investments.

• Equities are invested 50.1 per cent in Europe, 35.5 per cent in the Americas and South Africa and 14.4 per cent in Asia and Oceania.

• Bonds are invested in Europe (59.8 per cent), North America (34.2) and Asia and Oceania (6 per cent).

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