Good point, but I suggest if you think of this fund as basically the GDP of Norway than just another hedge fund, losing 0.6% in a quarter is slightly bigger deal than you make it. Like a G7 country's GDP contracting 2% in a year.
GDP is an output variable, Assets are resource variable.
If you own a forest. GDP is how much you cut the forest. Forest growth is growth of the assets. Norwegian wealth fund has similar time horizon as someone growing forest, several decades. Fluctuation in 6 quarters barely registers at the end.
Maybe a naive question, because presumably more money is always better, but I do wonder what the endgame with this Wealth Fund is. Obviously a country is not like an individual, so it's not like the whole country of Norway can "retire" once its wealth fund has reached a certain size, because people within the country still have to perform services for each other and therefore work.
So there seems to be a limit in how much these trillions in assets abroad can benefit the welfare of the Norwegian people. This has always confused me a bit, but I'm not well-versed enough in economics to articulate it correctly.
Probably the same must be true for most export-oriented economies, just that there the assets abroad are held by companies and individuals instead of a government fund.
It's called The Government Pension Fund Global (Statens pensjonsfond utland), aka Oil Fund (Oljefondet). As the name suggests, it's used to pay pensions.
>Each year, the Norwegian government can spend only a small part of the fund, but this still amounts to almost 20 percent of the government budget.
>There is a broad political consensus on how the fund should be managed. The less we spend today, the better the position we will be in to deal with downturns and crises in the future. Budget surpluses are transferred to the fund, while deficits are covered with money from the fund. In other words, the authorities can spend more in hard times and less in good times. So that the fund benefits as many people as possible in the future too, politicians have agreed on a fiscal rule which ensures that we do not spend more than the expected return on the fund. On average, the government is to spend only the equivalent of the real return on the fund, which is estimated to be around 3 percent per year. In this way, oil revenue is phased only gradually into the economy. At the same time, only the return on the fund is spent, and not the fund’s capital.
It provides leverage for a country that otherwise only has wealth stored mostly in tradeable natural resources (natural gas, wood, and fish) and real estate. The sovereign wealth fund exists to maintain the wealth of the country in the case that they are no longer able to trade natural resources or their housing market crashes and people are unable to sell their real estate for a profit anymore. It allows for them to have time to reorient their economy towards something new instead of everyone going into poverty and getting stuck there.
It isn’t a loss until it’s realised - unless of course they have risk rules around the management of it that say if an asset declines x% you must sell.
Readit News
Sure, my (scrappy) portfolio went down by more than that percentually, so it looks like this Norwegian fund didn’t even get hit that hard.
GDP is an output variable, Assets are resource variable.
If you own a forest. GDP is how much you cut the forest. Forest growth is growth of the assets. Norwegian wealth fund has similar time horizon as someone growing forest, several decades. Fluctuation in 6 quarters barely registers at the end.
So there seems to be a limit in how much these trillions in assets abroad can benefit the welfare of the Norwegian people. This has always confused me a bit, but I'm not well-versed enough in economics to articulate it correctly.
Probably the same must be true for most export-oriented economies, just that there the assets abroad are held by companies and individuals instead of a government fund.
How do we spend our savings? https://www.nbim.no/en/about-us/about-the-fund/
>Each year, the Norwegian government can spend only a small part of the fund, but this still amounts to almost 20 percent of the government budget.
>There is a broad political consensus on how the fund should be managed. The less we spend today, the better the position we will be in to deal with downturns and crises in the future. Budget surpluses are transferred to the fund, while deficits are covered with money from the fund. In other words, the authorities can spend more in hard times and less in good times. So that the fund benefits as many people as possible in the future too, politicians have agreed on a fiscal rule which ensures that we do not spend more than the expected return on the fund. On average, the government is to spend only the equivalent of the real return on the fund, which is estimated to be around 3 percent per year. In this way, oil revenue is phased only gradually into the economy. At the same time, only the return on the fund is spent, and not the fund’s capital.
What does the cycle look like here? Maybe Q1 is a lull in a statistic that affects this loss calculation.
Maybe fluctuations of less than one percent are to be expected quarter to quarter.