What Can Nations Learn from Norway and Kuwait in Managing Sovereign Wealth Funds?

Economics / Sovereign Wealth FundsMar 01, 2014 - 06:41 PM GMT

By: Sam_Chee_Kong

To begin with what are Sovereign Wealth Funds? According to the Sovereign Wealth Fund Institute, a SWF can be defined as follows.

“A Sovereign Wealth Fund entity is a state-owned investment fund established from balance of payment surpluses, official foreign exchange operations, the proceeds from privatizations, governmental transfer payments, fiscal surpluses and/or receipts resulting from resource exports”

Ethical Investing – Santiago Principles

Due to prudent investment approach, the Norwegian Government Pension Fund Global has grown to $ 818 billion in 2013. This also helped Norway to achieve one of the highest wealth per capita of $161,500. Thus, this enabled Norway to sustain a high level Standard of Living not only for this generation but also the next. Apart from this, Norway’s GDP per capita has risen from about $40,000 to more than $65,000 in 2013. This can be shown by the chart below.

The oil wealth also helped to fund Norway’s Social Security and health care which is one of the most generous in the world. Norwegians are practically taken care from cradle to grave. Medical care such as hospitalization and medication are free. Those have terminal illness are still getting their full salary even though they are not working. Maternity leave for workers is one year with full pay and is required to stop work three weeks before delivery. Workers will receive full pension upon retirement and the amount depends on the contribution from their previous salary.

Apart from this, due to the sheer fund size, it is able to set its priority right and that is to promote responsible and ethical investment. The fund ethical investment approach is based on the Santiago Principles. The Santiago Principles, an effort of IMF are a set of guidelines for assigning ‘best practices’ for the operations of Sovereign Wealth Funds. Apart from this the Council of Ethics was set up to review companies operations so that it will meet certain standards such as environmental friendly, no usage of child labor or human rights violations and so on.

Recently, the Norwegian Finance Ministry barred the Government Pension Fund Global from investing in two Israeli companies namely Danya Cebus and Africa Israel Investments (AII) due to their ‘serious violation’ in human rights. It also barred the fund from investing in Vedanta, a company listed on the London Stock Exchange after the Council of Ethics found that their operations in India have caused severe environmental damage and human rights violation.   

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This BLOG  looks at pensions and their impact on what are called Public Private Partnerships or P3’s these are not really about private funding at all but about two streams of public funding, pensions and government with private capital a third partner.

We will also deal with other pension matters, such as Defined Contribution Plans (DC) vs Defined Benefit (DB) PLANS, the weakness in private plans, the need for pension reform in public pensions to have shareholder rights, directorships and ethical investment directives and policies. 

Finally taking the long view we will show how these funds are forms of evolving social capital that is dominating private capital as we evolve into socialization of capital. 

Click HERE to read more....