Global Finance: Norway: Norwegian cuckoo

Grow too big, and there's just no way you can huddle away from an ill wind.That's the bitter experience of the Norwegian Government Petroleum Fund, which last month unveiled a 4.7% slump in the value of its investments over 2002. Knut Kjaer, the executive of Norway's central bank who oversees the fund, says it was hit by the storm that blew through world equity markets-as well as the strength of the krone.

Set up in 1998 to invest state revenues from the country's oil and gas industry, the fund places all of its money abroad. And that's some money. Even after recent travails, it's worth NKr609 billion ($81.7 billion). The fund is expected to top $250 billion by 2010, around the value of Norway's GDP.

That's made it a top target for hometown politicians, who argue that fund managers should be spending cash in Norway rather than gambling money abroad. But the Petroleum Fund does more than provide a nest egg for future pensions; it also acts as a safety valve, siphoning off cashflows that would unbalance the domestic economy.

The size of the fundset to be the world's largest-limits its flexibility, as does the strict mandate under which it operates from the central bank. Still, Knut Kjaer has some tricks up his sleeve. The 60% of the fund that's in bonds returned 9.9% last year. And Kjaer is set to take a more active role in the companies in which it holds shares. "Over the past two years the size of our internally managed portfolio has increased, and so also our stakes in global companies," he says, "making it more certain in a cost benefit context that we will gain from being more active."

-Benjamin Beasley-Murray