The European Funds
The major European funds in Norway and Russia reveal all the benefits and pit falls of managing commodity-dependent economies. They also provide an interesting contrast for numerous important factors in the study of sovereign wealth funds (SWFs). Similar in their dependence on oil, gas, and natural-resource activities for a significant portion of GDP and exports, Norway and Russia present a study in contrasts in most other respects that illustrates many of the cleavages of SWF states. Norway was one of the poorer countries in western Europe prior to the discovery of oil while Russia is considered an emerging market economy; Norway has a long history of established and stable social democratic government while Russia is still establishing its own democratic tradition; Norway has reduced its dependence on oil and gas through broad economic diversification while Russia remains dependent on a narrow range of commodities; Norway has built a track record as a global investor with respected criteria and financial planning while Russia only moved beyond stabilization fund investment in early 2008 and still holds a narrow range of assets. Their joint dependence on oil unites them, but their divergence makes an interesting comparison for the world of SWFs.
The Norwegian Global Pension Fund (NGPF), regarded as the standard bearer of transparency and investment management by activists and academics, demonstrates the uniqueness of every economic situation and the inherent struggles in managing commodity wealth that face SWF countries. The NGPF is today held in high esteem for its openness, ethical demands on companies, and classically constructed portfolio. The truth, however, is more complicated, because Norway suffered through numerous commodity-driven money supply and public expenditure inflationary periods before establishing the NGPF. Even its widely admired ethical framework for companies is more complicated, as by its own admission, this is a political and ethical statement of the values of the Norwegian government and people, and the NGPF is willing to bear the cost even if that results in lower returns. The two current Russian funds evolved out of the Stabilization Fund, which was established only in 2004 and which in its short life accumulated $157 billion. The Stabilization Fund was divided into the Reserve Fund (RF) and the National Wealth Fund (NWF) in January 2008 by representing the dichotomous approaches to commodity wealth management, with the traditional stabilization fund and the intention of active investment management. At their creation, the