Norwegian Sovereign Wealth Fund Reaches 3,200 Trillion Won in 30 Years

After the discovery of one of the world's largest offshore oil fields in the North Sea in 1969, Norway experienced both turmoil and anticipation.

There were concerns about the 'Dutch Disease' that the Netherlands had experienced after discovering natural gas in 1959. The Netherlands saw its currency value soar and its manufacturing competitiveness weaken due to natural gas development, a phenomenon also known as the 'resource curse.'

To prevent such a precedent, Norway established a sovereign wealth fund (officially named the Government Pension Fund Global) in 1990 and began actively operating it in 1996 with its first deposit of oil revenues.

The Norwegian sovereign wealth fund started with a size of $300 million in 1996.

Thirty years after its establishment, it has grown into the world's largest sovereign wealth fund, currently valued at approximately 3,200 trillion won.

In particular, investments in renewable energy infrastructure, especially offshore wind power, are being significantly expanded.

Initially, the fund operated conservatively, focusing on bonds, but it has gradually adopted a strategy of increasing its equity allocation.

The Norwegian sovereign wealth fund primarily operates under a centralized system, managed almost directly by the Central Bank of Norway.

However, in cases where direct management by the central bank is deemed less efficient in a specific country or sector, management is entrusted to external experts.

Separately, the exercise of voting rights in shareholder meetings of investee companies is managed centrally to maintain the fund's influence.

The official name of the Norwegian sovereign wealth fund is 'Government Pension Fund Global,' and as its name suggests, it invests exclusively overseas, with no domestic investments whatsoever.

This principle of overseas investment aims to minimize its impact on the domestic economy and ensure the fund's independence from political interests or interference.

During the last Norwegian general election, boycotts against Israeli companies occurred due to the Gaza conflict, and the positions of each political party on investing in Israeli stocks were explicitly stated in their election materials.

Norway, being a small country, judged that a massive inflow of sovereign wealth fund capital domestically could cause significant distortions in its economic structure.

Furthermore, the sovereign wealth fund's returns cover a substantial portion of the Norwegian government budget, contributing to improving the welfare level of its citizens.

This principle is also a common investment philosophy shared by global asset managers such as BlackRock.

The fund concentrates its strategic capabilities on risk management related to market volatility, especially managing selling timing, rather than individual stock selection.

The Norwegian sovereign wealth fund's policy is not to hold more than 10% ownership in any individual company.

However, even with less than 10% ownership, it actively participates in the shareholder meetings of some 7,000 investee companies, including Samsung (approx. 1.5%) and Tesla, exercising strong shareholder rights.

This contributes to influencing corporate decision-making and enhancing corporate value.

In the event of a stock market crash due to economic crises, the Norwegian sovereign wealth fund does not rush to sell its stocks.

Instead, if the proportion of stocks decreases and bonds increase, it sells bonds to buy additional stocks, thereby maintaining its asset allocation.

This approach allows the fund to acquire more assets when the market is undervalued, contributing to improved long-term returns.

The Norwegian sovereign wealth fund applies two primary filtering criteria when selecting investment targets: product-based and conduct-based.

Based on product criteria, it does not invest in companies where more than 30% of energy production comes from fossil fuels. Companies like Korea Electric Power Corporation are excluded based on this standard.

It also adheres to the principle of not investing in industries that could cause casualties, such as the development of cruel weapons.

The Norwegian sovereign wealth fund has an independent ethics committee, which wields significant power in investment decisions.

The ethics committee decides to exclude investments in certain companies or place them on an observation list, and the fund's management respects its judgments without exception.

It rigorously applies ethical investment standards through thorough moral screening, including verifying the criminal records of company owners.

When initially investing in a specific company, the Norwegian sovereign wealth fund typically acquires about 1% of that company's market capitalization.

Subsequently, if the company's profitability and future prospects are good and there are no particular ethical issues, it employs a strategy of gradually increasing its stake.

In some cases, the fund holds more than a 6% stake in certain domestic companies.

This is analyzed to be particularly due to the growth of domestic semiconductor giants.

Samsung Electronics' ranking rose from 12th to 4th, and SK Hynix's to 8th, driving the overall proportion of Korean stocks.

Additionally, by exercising strong shareholder rights over investee companies, it reduces corporate risk and ensures sound management.

This proactive communication with companies establishes a virtuous cycle, contributing to the fund's stable growth.

Bond management, similar to stocks, is carried out in accordance with a predetermined asset allocation (weight).

If an overconcentration in a specific country or asset occurs, risks are managed through a diversified investment strategy.

Recently, the fund has been exploring alternative investment directions, such as green bonds, to enhance portfolio diversity.

The importance of improving corporate structure through independent voting rights, similar to the Norwegian sovereign wealth fund, was emphasized.

The investment philosophy of the Norwegian sovereign wealth fund also offers important implications for individual investors.

It recommends diversified investment, allocating 25-30% of total assets to stable assets like bonds.

It emphasizes the importance of guarding against excessive greed for specific promising stocks and managing crises by responding quickly when corporate signals worsen, without regret.