NORWAY - The Norwegian government is considering the introduction of an upper limit for management fees for external managers of its NOK2.9trn (€365bn) Government Pension Fund Global after a contract with no limit was branded "reprehensible".

State secretary Hilde Singsaas made the suggestion in a statement after the country's Auditor General criticised the contract, which stipulated no upper limit for performance-related fees.

The contract resulted in the manager claiming performance-based fees estimated to be NOK900m.

The agreement was then renegotiated in the autumn of 2009 and became an early upper limit for performance-based remuneration.

As a result of the negotiations, the manager was paid approximately NOK500m in 2009.

The Auditor General's report said: "It is considered reprehensible Norges Bank entered into a contract with an external manager without an upper limit for performance-based remuneration."

Norges Bank Investment Management (NBIM), which oversees the fund, paid NOK3.2bn in management fees in 2009.

Of this, management fees to external managers totalled NOK1.8bn, of which NOK1.4bn were performance-related fees.

In the fall of 2008, NBIM entered into an agreement on a mandate with an external manager, which did not set an upper limit for the return-based fees.

Commenting on the Auditor General's report, Singsaas said the Norwegian government would like to see total management fees low.

"We know it is expensive to engage the best managers," she said. "We are therefore pleased comparisons with other major funds shows the Bank's management costs are relatively low, while returns are good.

"At the same time, the salary and bonuses in the financial industry in general are unreasonably high.

"The government has recently put forward proposals that will tighten up the use of bonuses in the financial industry. Similar rules will also apply to the Bank's management of the pension fund."

She added: "Many have advocated introducing a ceiling for fees to the fund's external managers. Norges Bank has stated that they usually have such roofs.

"Whether one should introduce a general-rule hold for all fees is a question that will be considered. The basis for such an assessment must be what best protects both the fund's financial interests and the fund's reputation."

In 2009, NBIM awarded 75 mandates to 45 external managers to oversee assets worth approximately NOK316bn.