Norway wealth fund manager says fund collapse not impossible

OSLO – Could Norway’s sovereign wealth fund, the largest in the world with over US$2 trillion (S$2.5 trillion) in assets, go up in smoke? On Aug 11, its manager said it was a possibility and that current global tensions made the prospect less implausible.

Fuelled by the Norwegian state’s oil and gas revenues, the sovereign wealth fund – commonly called the oil fund – has seen its value rise from under 2 billion kroner at its inception in 1996 to more than 22 trillion kroner (S$2.96 trillion) today.

Nicolai Tangen, chief executive officer of Norges Bank Investment Management which manages the fund, on Aug 11 warned that the phenomenal and extraordinary growth, partly due to luck, was not something that could be expected to continue at the same pace in future.

“Can the oil fund disappear? The answer is yes. And the worst thing is that in the world we live in today, it’s not totally improbable,” he said in a speech in Arendal, a town in southern Norway where the country’s elite is gathered this week.

“No country in history has managed to maintain such a vast fortune over the long term. Fortunes always end up disappearing,” he argued, citing historical examples such as Spain and the United Kingdom.

Invested in equities, bonds and properties across the world, the Norwegian fund is designed to be a long-term undertaking and to benefit future generations.

To balance public finances, which would otherwise be in deficit, the government is currently allowed to draw up to 3 per cent from the fund each year, a ceiling that corresponds to the estimated annual return on investments and therefore does not eat into the nest egg itself.

Among potential risks, Tangen mentioned extreme scenarios such as a nuclear war or biological terrorism, but also that of a prolonged depression triggered, for example, by the bursting of an “AI bubble” – referring to the high prices of stocks linked to artificial intelligence – combined with a trade war between the US and China.

Even though more safeguards are now in place, the latter scenario would be comparable to the great economic depression of 1929 and could wipe out “at least 80 per cent” of the value of stock market investments, Tangen said. AFP