INVESTMENT MANAGEMENT AT NORGES BANK DEPUTY GOVERNOR EGIL MATSEN Copenhagen, 28 September 2017
Norges Bank s balance sheet 1) Norges Bank s balance sheet (excl. GPFG) 700 600 500 400 300 200 100 0 Foreign exchange reserves Claims on IMF and other assets Assets Deposits from the Treasury Deposits from banks Liabilities to IMF and other liabilities Notes and coins Equity Liabilities and equity 1) Amounts in billions of NOK,. At 30 June 2017 2
Norges Bank s balance sheet 1) Norges Bank s balance sheet Norges Bank s balance sheet (excl. GPFG) 10000 700 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 Investments, GPFG (oil fund) Assets Deposits in krone account, GPFG (oil fund) Liabilities and equity 600 500 400 300 200 100 0 Foreign exchange reserves Claims on IMF and other assets Assets Deposits from the Treasury Deposits from banks Liabilities to IMF and other liabilities Notes and coins Equity Liabilities and equity 1) Amounts in billions of NOK. At 30 June 2017 3
Foreign exchange reserves and GPFG 1) Note the scale difference Foreign exchange reserves GPFG (oil fund) 100 90 80 70 60 50 40 30 20 10 0 USD billions % of GDP 1000 900 800 700 600 500 400 300 200 100 0 USD billions % of GDP 1) At 30 June 2017 Source: Norges Bank 4
Investment organisations EXECUTIVE BOARD Governor (Chair) Deputy Governor (First Deputy Chair) Deputy Governor (Second Deputy Chair) Audit Committee Remuneration Committee Ownership Committee Risk and Investment Committee Internal Audit General Secretariat Number of employees: 560 Norges Bank Central Banking Operations Number of employees: 25 Norges Bank Investment Management 5
Objectives Foreign exchange reserves 1. Ensure necessary funds to meet monetary policy goals promote financial stability fulfil Norges Bank s international commitments to the IMF GPFG (oil fund) High long-term return subject to acceptable risk responsible investment cost-effective management transparency 2. High long-term return, subject to 1. and other (risk) constraints 6
Management mandate Universe Investable universe (permissible investments) Reference index Risk preferences and performance benchmark 7
Return on the GPFG and reference index Index 350 300 250 200 150 Annualized excess return: 0.27%% GPFG¹ Reference index² 100 50 0 1998 2001 2004 2007 2010 2013 2016 1) Equities, fixed income and real estate. 2) Benchmark index for equities and fixed income investments. Sources: Bloomberg Barclays Indices, FTSE and Norges Bank 8
Return on the FX reserves and reference index Index 350 300 250 200 150 100 Annualized excess return: 0.20% Foreign exchange reserves Reference index 50 0 1998 2001 2004 2007 2010 2013 2016 Sources: Bloomberg Barclays Indices, FTSE and Norges Bank 9
Management mandate Universe Restrictions Reference index Investable universe (permissible investments) Ensure a portfolio in line with preferences Risk preferences and performance benchmark 10
Reference indexes asset allocation 1) Foreign Exchange reserves 65.0% FIXED INCOME 35.0% EQUITY - Bonds - 1-10-year government bonds issued by France, Germany, Japan, US, and UK - 50% USD, 34% EUR, 8% GBP, 8% JPY GPFG (oil fund) 37.5% FIXED INCOME 62.5% EQUITY - Bonds (based on Bloomberg Global Aggregate Bond Index) - 70% government bonds, GDPweighted - 30% corporate and securitised bonds - Equities - FTSE All World Dev Markets, limited to 9 economies - Large and mid cap stocks - Equities - Based on FTSE Global All Cap - Significant adjustments of regional weights 1) At 30 June 2017 11
Reference indexes regional allocation 1) Foreign exchange reserves GPFG (oil fund) 36% EUROPE 54% NORTH AMERICA 10% ASIA AND OCEANIA - 18 countries and 9 currencies - Only developed markets 42% EUROPE 37% NORTH AMERICA 18% ASIA AND OCEANIA 3% REST OF THE WORLD - 46 countries and 34 currencies - Approx. 9% emerging markets 1) At 30 June 2017 12
GPFG actual allocation compared with the reference index 1) Reference index 37.5% FIXED INCOME 62.5% EQUITY 42% EUROPE 37% NORTH AMERICA 18% ASIA AND OCEANIA 3% REST OF THE WORLD - 46 countries and 34 currencies Actual allocation 32.4% FIXED INCOME 65.1% EQUITY 2.5% REAL ESTATE 36% EUROPE 42% NORTH AMERICA 18% ASIA AND OCEANIA 4% REST OF THE WORLD - 77 countries and 50 currencies 1) At 30 June 2017 13
FX reserves actual allocation compared with the reference index 1) Reference index Actual allocation 65% FIXED INCOME 35% EQUITY 64.4% FIXED INCOME 35.6% EQUITY 36% EUROPE 54% NORTH AMERICA 10% ASIA AND OCEANIA 36% EUROPE 54% NORTH AMERICA 10% ASIA AND OCEANIA 1) At 30 June 2017 14
RENMINBI INVESTMENTS 15
Foreign exchange reserves and renminbi Possible transactions between the IMF and Norges Bank may be made in RMB in the future Norges Bank has opened a RMB account at the BIS Chinese markets available for FX reserve investments only recently. Too early to evaluate experience Norges Bank will monitor developments and provide information about the Chinese market ahead 16
Investment universe GPFG: Equities Reference index Investment universe Sources: FTSE Russell, MSCI and Norges Bank 17
GPFG investments in China 1) Equities China is the largest emerging economy in the fund s equity investments Around 3% of the equity portfolio Fixed income Smaller allocation, less than 1% of the bond portfolio. 1) At 30 June 2017 18
INVESTMENT MANAGEMENT AT NORGES BANK DEPUTY GOVERNOR EGIL MATSEN Copenhagen, 28 September 2017