Norway’s NOK12.2trn (€1.2trn) Government Pension Fund Global (GPFG) – which is mainly run as an index tracker – should be given a clear target for its returns from active management, according to an officially-commissioned expert report.

The trio of academic authors behind the report have also called for a probe into why the sovereign wealth fund fails to make the most of its tracking error limit.

The Norwegian Finance Ministry on Friday published the recently-submitted report of the expert group tasked last summer with reviewing Norges Bank Investment Management’s (NBIM) active management of the GPFG.

The group comprises Rob Bauer, professor at the University of Maastricht; Charlotte Christiansen, professor at Aarhus University and Trond Døskeland, who is a professor at the Norwegian School of Management.

The ministry said the expert group’s report – along with assessments and analysis received from Norges Bank in December 2021 – would form part of its basis for further assessment.

The review would be discussed in the annual white paper on the SWF, due in the spring, it said.

In the first of five key suggestions the academics offered in the report, they said: “We encourage the MoF to provide NBIM with a mandate with a clear active-return target.”

Such a goal could serve as guidance for NBIM’s strategic decision-making regarding its active management, and would also give future review committees a better basis for their feedback, they said.

“We further urge the MoF to investigate why NBIM does not take full advantage of its tracking-error limit,” they went on.

The objective of such a probe would be to understand why this ex-ante limit was not reached, they said, and whether any operational impediments or structural barriers played a role – and whether and how they could be lifted, if relevant, the experts wrote.

The academics also suggested NBIM improved communication with external stakeholders on the fund’s active strategies and sub-strategies, giving access to more granular information on the internal benchmarking process, as well as on cost allocation.

On the fund’s investment in unlisted real estate, the experts said that if the ministry confirmed the removal of real estate from NBIM’s benchmark, “we seriously doubt the long-term viability of NBIM managing unlisted-real-estate investments.”

“If unlisted real estate is deemed important for diversification purposes by the MoF, we advise restoring real estate to the benchmark,” they said.

In 2017, real estate was formally removed from the GPFG’s benchmark.

As another point, the academics said they urged the ministry to provide clarity in the SWF’s mandate on the objectives and prioritisation of active ownership strategies – as well as making clear which parts of this prioritisation were NBIM’s purview – and which were prescribed in the mandate.

The Ministry of Finance said it might arrange a seminar where the expert group and Norges Bank could present their analysis.

Separately, ESG data science firm RepRisk announced it has won its fourth successive tender from the the GPFG’s Council on Ethics to provide it with ESG data and portfolio monitoring services.

The Zurich-based firm said it had first won a mandate from the council in 2009, and been working with it ever since, monitoring firms in the SWF’s portfolio on issues including severe human rights violations, particularly in relation to child labour, forced labour, and violations of human rights in conflict areas, as well as gross environmental degradation and corruption.

The new mandate runs until December 2025, RepRisk said.

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