Norway’s Norges Bank has issued its response to a government-issued commission’s report on the possible developments that could present a risk to the Government Pension Fund Global (GPFG).

Norges Bank said that report provided a good starting point for increasing understanding of the risks faced by the GPFG and the degree to which these risks can be addressed in the management of the fund.

The fund’s investment strategy is outlined in the management mandate issued by the Ministry of Finance, and has become “more extensive and more detailed” over time, with the commission recommending that the government considers whether it would be appropriate to have a more general and principles-based mandate.

In its response, Norges Bank said that it believed it may be useful to conduct a fresh review of the mandate in light of the commission’s report.

The commission also recommended that the Ministry of Finance considers establishing an independent council to monitor, examine and evaluate various aspects of the fund, and make recommendations to the ministry.

Norges Bank responded that if the ministry was to set up a permanent external council, its role would need to be clearly defined and it should be made clear how the council would differ from the ministry’s established processes for advice on investment strategy.

Furthermore, it argued that the creation of a council should not compromise the clear lines of responsibility in the current governance model.

The commission stated that the governance model with a division of duties between political authorities and operational management has functioned well, and that the principle that the fund should be as broadly diversified as possible should be retained.

It warned that it was important for the fund to have realistic expectations for what it can achieve and that its reputation could be damaged if expectations were not met.

Norges Bank said it shared the commission’s overall views and that by ensuring the greatest possible transparency about the management of the fund within the limitations imposed by responsible implementation of the management mandate, it aimed to contribute to realistic expectations for what it can achieve.

The commission argued that the fund’s ability to deal with various challenges and crises could be improved, which Norges Bank agreed with and said it was continuously looking to strengthen its situational understanding, stress testing and contingency planning.

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