Russia is thinking about the active use of its oil revenues. The Ministry of Finance proposes to convert the national wealth Fund in the largest state investment Fund. The money of the Fund must be repaid, which is why the Finance Ministry proposes to take as a basis the best traditions and practices of the Norwegian pension Fund, which for 20 years has accumulated a trillion dollars and is considered the best example of a competent state revenue office. The Russian piggy Bank at top speed — in the material “Tape.ru”.
The Norwegian pension Fund (Government Pension Fund Global GPFG) is the largest stabilization Fund in the world. Since 1996, he deducted the surplus from oil production, and since 1998 this money is invested, forming a reserve Fund for future generations. The Fund calls its mission a responsible and long-term management of Norway’s revenues from hydrocarbons to ensure that this wealth benefited not only present but also future generations. While he copes with this task more than successfully, so its volume exceeds a trillion dollars (that’s 2.5 times more than GDP for 2018). In recalculation on one inhabitant of the country, which is home to 5.3 million people, almost 200 thousand dollars.
Norway managed to increase its stabilization Fund due to the investment strategy and restrictions on expenditure of Fund by the government — it can only spend the investment income, which is estimated at approximately three percent of the total Fund size (about $ 30 billion). This essentially means that the bulk of the Fund remains untouched and almost all the time. Thus, in the period between 2008 and 2018, a negative yield was recorded only three times during the crisis in 2008, 2011 and 2018 years. With an average for the period 1998 average annual return of the Fund was 5.47%. GPFG operates on the principle of full transparency on the Fund’s website in real time you can track all the statistics and dynamics, get information about investing in any assets for the entire period of time.
The investment strategy of the Fund developed by the Ministry of Finance based on the recommendations of Norges Bank Investment Management (an investment company managing the Fund on behalf of the Agency). Funds is invested abroad to avoid overheating and to protect it from the effects of fluctuations in oil prices. All money is invested in three types of assets — shares in foreign companies (the Fund owns shares in more than nine thousands of companies worldwide), corporate and government bonds and real estate. As of 2018, the Norwegian pension Fund invested in 73 countries.
GPFG prefers to invest “safe” — the main directions for investments are countries like USA, UK, France, Germany and Japan. According to the investment strategy of the Fund, the largest portion of funds — up to 70 percent of the volume of the Fund is invested in shares of companies abroad, 30 percent in bonds, seven percent in real estate.
The largest revenue in 2018, the Fund brought its action. According to estimates GPFG, he owns approximately 1.4 percent of all registered companies in the world, making it one of the largest investors. The Fund diversifitsirovat their assets, investing in various sectors of the economy. This is mainly public companies or those that have already officially announced their intention to go public. Thus, the U.S. Fund owns shares of Apple, Coca-Cola and PepsiCo, Microsoft, the oil company ExxonMobil, the financial holding company JPMorgan Chase & Co., the restaurant chain Papa John’s, a manufacturer of shoes and accessories Steven Madden, and the most expensive company in the world — Amazon. While GPFG pays particular attention to whether the company care about the environment and how to relate to your employees is a negative evaluation, these indicators may cause failure to invest in the organization or out of this asset.
The second most profitable source of the Norwegian pension Fund is its estate. “The Fund invests in high quality properties that can bring good income,” — said on the website GPFG. We are talking about office, retail and warehouse premises, and they are bought not only as a long-term investment, but for resale. The Norwegian pension Fund is conservative regarding the choice of property — covers only major Metropolitan areas and cities of Europe, USA and Asia with high expected population growth or employment or high growth potential of the economy. So, in the USA the main assets are concentrated in new York, Boston, Washington and San Francisco, in Europe — in London, Paris, Berlin and Munich, and in developed Asian markets — in Tokyo and Singapore.
The smallest volume of income in 2018, the Norwegian pension Fund brought bonds. According to the investment strategy of the Fund, 70 percent of funds must be in government securities and 30 corporate. Norway gives preference to the Eurobonds issued in Euro, dollar, pound and yen developed countries. The volume of investments depends on the country’s GDP. The entire Kingdom is the holder of the debt of 32 countries, including Australia, Germany, Canada and the UK. Norway, among others, was also a holder of Russian debt, but in early April the Ministry of Finance of the Kingdom announced the release of the bonds from 10 developing countries, including Russia. When choosing a company to invest Pension Fund of Norway pre-assessing the creditworthiness of the organization. Among the companies whose debt keeps the GPFG, — oil company BP, the manufacturer of Heineken beer, a Johnson & Johnson company, rating Agency S&P, Starbucks and McDonalds, Visa and the Walt Disney Corporation. In the US, the Pension Fund lent through bonds 1930 companies.
Russia, which, like Norway, receives a basic income from hydrocarbons (according to preliminary data, 46 percent of the budget in 2018), with 2004 set aside the windfall from oil and gas in its stabilization Fund. As a result, by 2008 the volume of funds on the Russian and Norwegian accounts were quite comparable — 156 billion and $ 230 billion respectively. However, after 2008 due to the global economic crisis, the pressure of sanctions and falling oil prices Russia’s “safety cushion” is strongly reduced, whereas Norwegian has only grown stronger. Russia has managed to increase the volume of own funds in 2018 due to high oil prices — in the end, the national welfare Fund (NWF) has doubled and as of March of 2019 reached almost $ 60 billion.
In April, the Finance Ministry has proposed to begin to invest the Fund according to the Norwegian example. Now the income from placing funds of the Fund is small — at the end of last year it amounted to 0.63 percent. However, the Department want to move away from the conservative model, when money from the national wealth Fund bought government bonds in foreign currency and kept on Deposit with Vnesheconombank. The Ministry considers that as the amount of liquid funds of the NWF will reach seven percent of GDP (this amount is needed in case of “stress scenarios on commodity markets to compensate for the budget deficit”), the excess you need to invest in more risky and profitable tools.
The Ministry has already started to develop a new system of management of the Fund of national welfare. Propose two new directions for investment to start buying shares of foreign companies on the example of Norway and to give more affordable loans to buyers of Russian non-commodity products. “We are talking about loans at lower rates than those on which projects are implemented through loans now, — construction of energy infrastructure in different countries, supply of engineering products”, — explained “the Tape.ru” in the Ministry of Finance.
The Department stressed that we are talking about projects abroad, as investments in the country can lead to the strengthening of the ruble. According to estimates of the Ministry, the volume of liquid funds of the NWF will reach seven percent by the end of 2019. The Agency intends to this moment to amend the legislation so that the new investment strategy could earn in 2020.
However on many issues the Finance Ministry still keeps silent. It is unclear on lending what projects abroad is about, and whether the purchase of foreign assets is limited due to Western sanctions. Did not answer “the Tape.ru” and on a question about the severe restrictions the same limits in the Norwegian Fund, they allowed us to increase the volume of the GPFG more than a trillion dollars. Two other important questions that the Finance Ministry has not responded, — the expected rate of return on investment and transparency of the system investment Fund. The effectiveness of the Pension Fund of Norway can be checked by anyone — a guide to the management company reports regularly on the work on his website, everyone can check and get all the information about investment and profitability.
The Russian government this level of transparency yet can not boast, however, I want to believe that the adopted world practice successfully take root in Russia. The creation of such Institute will give a signal to international investors who will be able to perceive Russia as a leading financial player. Creating a new source of money will allow the state to reduce dependence on energy resources and to increase financial reserves in the future. With proper management of the Fund in a few years can grow to a trillion dollars.
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