Investment Universe

The purpose of this policy is to provide principles for the approval and on-going monitoring of the fund's investment universe for the fixed income and equity asset classes. The objective is to ensure changes to the investment universe align with the investment strategy and that relevant risks are identified, assessed, and accepted.

Issued 10 November 2008
Last updated 12 June 2024

Policy

The fund invests in a broad range of issuers of government bonds, markets and financial instruments in order to achieve its investment objectives. These dimensions constitute the fund’s investment universe for the fixed income and equity asset classes. The approved investment universe is the combination of approved asset class and the financial instrument and approved market, issuer or currency. The approval of a financial instrument is limited to a defined set of approved markets, currencies or issuers as relevant for the specific instrument.

Norges Bank Investment Management takes a risk-based approach to which issuers of government bonds, markets and financial instruments are appropriate in the investment universe given our investment strategy. This includes a business rational and due consideration of relevant investment and operational risks, including country risk. Investments in new dimensions of the fund’s investment universe will only be made after an implementation process verifies that, amongst others, relevant systems and reporting requirements can be met

The investment universe is assessed on a recurring basis to ensure it is appropriate given the investment objectives.    

Financial Instruments

  • All financial instruments that are utilised in the management of the fund shall complement our investment strategy.
  • All financial instruments shall be subject to an assessment where we consider relevant investment and operational risk.

Markets and issuers of government bonds

  • Approval of markets and issuers of government bonds are subject to the considerations referenced in the Management Mandate for the Government Pension Fund Global.  
  • In addition, we will take the following into consideration: 
    • where the risk of a failed state is unacceptably elevated due to factors like extreme conflict or systematic political terror.
    • whether the rule of law and protection of property rights is considered sufficient to safeguard our investments.
    • conditions of its citizens and the environment.
    • an assessment of the relevant investment and operational risks. 

Business case

  • A formal business case for changes to the investment universe shall be submitted for review by the leader group and approval by the CEO NBIM in the Investment Meeting.
  • The business case shall normally be accepted prior to the commencement of the risk assessment.

Risk assessment

  • Through the risk assessment, we secure an understanding of the relevant investment and operational risks, including country risk
  • Country risk captures the government and institutions in the country as well as reflects the conditions of its citizens and the environment.
  • Investment risk takes into consideration factors related to the market framework, the functioning of the marketplace, ownership issues, legal documentation, tax as well as credit, counterparty, and market risks.
  • Operational risk takes into consideration factors related to the exchanges, settlement and safekeeping, market infrastructure as well as relevant restrictions and disclosures. It also considers asset servicing, valuations, measurement of risks, data and systems, compliance and tax.

Executive Board approval of government bond issuers, financial instruments and markets

  • The management mandate from the Ministry of Finance requires that the Executive Board of Norges Bank perform an approval for all financial instruments and markets the fund is invested in, and all issuers of government bonds. The approval shall depend on whether the financial instrument, market or government bond issuer contribute to an efficient and effective execution of the management assignment. This approval shall consider both investment as well as operational risks, including country risk.

Implementation

  • After approval of the risk assessment, the organisation, processes, systems and downstream services provided are made ready for implementation of the new dimension of the investment universe  
  • Preparations for implementation may start prior to approval where these do not commit Norges Bank Investment Management to invest, or where unacceptable costs may be incurred.
  • Additions to the investment universe will take place when the implementation has been successfully completed.
  • The fund shall only invest in markets and financial instruments through external managers when there is internal operational readiness to enable these assets to be managed internally if needed.

Monitoring

  • The investment universe shall be monitored to ensure it is aligned with the investment objectives and that the assets can be safeguarded. The monitoring process will take a risk-based approach.