(Bloomberg) -- The founding chief executive of Norway’s $1.8 trillion sovereign wealth fund has some advice for countries seeking to emulate his success: words matter.
“Today there are many different kinds of funds, managed in many different ways,” said Knut Kjaer, who ran Norges Bank Investment Bank from 1998 to 2007. “What is the same is the name — sovereign wealth fund — but they are all so different that the name itself becomes a bit meaningless.”
“If the idea is to create a state investment vehicle to achieve certain goals, then we are looking at an entirely different model and we should be more precise about what that model is.”
Kjaer, 68, was tasked with setting up Norway’s sovereign wealth fund, commonly referred to as NBIM, using about $300 million from surplus oil revenue. There were only a few other wealth funds around at the time, including the Kuwait Investment Authority, the world’s oldest.
NBIM is now one of the biggest of at least 100 different global investment structures, and a model for governments seeking to build funds of their own.
Delegations from some 13 countries — from neighboring Sweden to Ireland, the Czech Republic, Mongolia, Mexico, and Argentina — have traveled to Oslo since March 2023 to discuss strategies with Norwegian finance ministry officials, a spokesperson for the Finance Ministry said. Top aides to US President Joe Biden are also working on a proposal.
A key to NBIM’s fortunes has been its strict mandate, with very little government meddling in day-to-day investment decisions and government withdrawals limited to 3% of its annual value, according to Kjaer.
“You could create state funds that excel at drawing in private capital and invest in ventures and entrepreneurs that contribute to society,” he said in an interview. “But as a rule, when the state decides business policy, and which sectors to invest in, it goes wrong. Not always. But most of the time because you get vested interests and rent seeking.”
NBIM was founded to think long-term and invest abroad as a way of protecting Norway from the so-called Dutch disease when resource wealth drives hyperinflation.
“We had much of our wealth in the ground. Now it is the other way around,” said Kjaer, who currently serves as Executive Chairperson of Sector Asset Management and is a professor at the Norwegian University of Life Science. “More and more of the wealth is placed in financial instruments outside the country.
“What’s left in the ground is now only a fraction of the total wealth. We have reduced the risk and increased the expected returns.”
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