He will choose Norway’s most important figures – Aftenposten

– This is the Pension Fund’s most important numbers!

It says Director Ole Christian Bech-Moen in Norges Bank Investment management (NBIM, popularly known as the Oil Fund).

He thinks about the fund’s equity allocation.

Now the proportion is 60 per cent and fund 7,300 billion in total value. Options on equities are real estate and marketable bonds, also called bonds.

Annual government revenues from oil and gas operations are located in the Pension Fund.

Every year, some of the money spent on the state budget.

the Oil Fund is invested abroad in shares, negotiable debt instruments and real estate.

A department in Norges Bank with more than 500 employees account for management.

Within 1 December, the Executive Board of Norges Bank to give the Ministry advice equity allocation. Up, down or unchanged? Parliament will decide in the end.

Bech-Moen doing grunt work which will culminate in the Council. Tuesday organizes fund a conference to provide input. Nobel Laureate and finance professor Robert Merton is leading them to talk.

– This time we will try to bridge the gap between academics and practitioners, says Bech-Moen.

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The great choice

Everything else is happening around the fund are trifles compared with the choice of equity allocation.

– This is a trade-off between expected return and expected risk . The stock market provides a higher expected return, but it is also more risky, says Bech-Moen.

Just before the financial crisis in 2008-2009, Parliament decided to increase its holding from 40 to 60 percent. It was a fluke. The crisis meant that the fund could buy shares at low.

With the current size of the fund means 10 percentage points up or down on the proportion that 700-800 billion moves into or out of the stock market.

With a historical annual additional return of 4 percentage points on stocks this could mean around 30 billion more in expected returns, calculated in relation to the placing of tradable debt instruments. But history does not repeat itself.

Safe or Dangerous?

Putting it bluntly, it is no different for individuals than for the world’s largest funds. It is possible to live safely, sleep well and have all the money safely in the bank to low interest rates.

Alternatively, it is possible invest in shares. It turns much more. Nocturnal sleep deteriorates, but may pay off with higher returns over time.

Stocks fluctuate more

A look at annual percentage yield in the Pension Fund 15 years backwards tells a lot about the difference between stocks and other locations:

• the return on equities is positive or negative with mostly double digits.
• the return of marketable debt instruments with fixed interest rates are almost exclusively single-digit positive numbers. It is safe and boring.

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Getting paid extra

No one knows about the historical rule of thumb about 4 percent extra in return would apply in the future.

the extra return on equities fund actually achieved since it began with stocks in 1998 are in fact much worse.

shares and the bad night sleep has on average given only 0.4 percentage point extra returns every year, compared with the transferable loan paperwork. But here weighs the historical financial crisis in 2008-2009 heavily on shares.

– A central topic for the fund is about the long-term additional return on equities has changed. It would mean that payment for assuming risk has changed, says Bech-Moen.

Dangers into eternity

Bech-Moen also trying to determine if it really is so that fluctuations in the stock market is more or less over the long term.

– it is common to assume that the fluctuations even out in the long term, and that the risks of investing in equities is less in the long term than the short term. But academics are not in dispute over this. Some argue that the chance of getting a real downer increases with time, he said.

Oil Fund is an investor into eternity. No knock on the door with the right to get their money.

– If eternity means increased risk in equity markets may have great significance for advice we give, says Bech-Moen.

considering the world’s growth

the return on equities is often linked to economic growth. Good growth means good returns.

Bech-Moen goes fundamentally to work. He asks himself:

• Does the growth prospects something for equity returns?
• Does 8-10 years of low growth that the long-term growth prospects have changed, or is it low rise transient?
• What is the relationship between growth prospects and actual growth?
• and finally into the fund: What is the relationship between growth and equity returns?

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Fetching advice

Finance Siv Jensen has appointed an expert committee headed by senior economist Knut Anton Mork from Handelsbanken. It will consider the equity portion and comes with report in the fall.

Bech-Moen has its own advisory group with three finance professors from some of the world’s top universities.

The framework is not the best : it is not good to be saving when interest rates are very low long development in China is more uncertain than before and the global economic growth may not come up to where it was before the financial crisis.

other countries will see the choice of equity portion as a luxury problem. It’s good to own the world’s largest fund.