1 Authorisations and background

Principles adopted by Norges Bank’s Executive Board on 22 November 2023, pursuant to Section 3-2 of the Central Bank Act.

2 Purpose

Foreign exchange reserves are to be sufficiently liquid to be available for use in foreign exchange market transactions as part of the conduct of monetary policy or with a view to promoting financial stability and to meet Norges Bank’s international commitments.

Foreign exchange reserves can be held in connection with transactions on behalf of the government.

The aim of the management of foreign exchange reserves is the highest possible return within the risk limits outlined in Sections 4-9 below.

3 Organisation

Foreign exchange reserves are divided into an equity portfolio, a fixed income portfolio and the petroleum buffer portfolio. The equity portfolio is managed by Norges Bank Investment Management. The fixed income portfolio and petroleum buffer portfolio are managed by Norges Bank’s central banking.

4 Strategic equity allocation and transfers between the equity portfolio and the fixed income portfolio

The strategic equity allocation of the combined equity and fixed income portfolio is 20 percent. If the equity allocation accounts for less than 16 percent or more than 24 percent on the last trading day of the month, the allocation must be rebalanced to 20 percent on the last trading day of the subsequent month.

5 Equity portfolio

5.1 Investment universe

The equity portfolio may be invested in cash deposits and equities listed on a regulated and recognised exchange.

Cash deposits and equities shall be denominated in AUD, CAD, CHF, DKK, EUR, GBP, JPY, SEK or USD.

5.2 Benchmark index 

The benchmark index for the equity portfolio is a tax-adjusted version of the FTSE All World Developed Market Index, limited to Australia, Canada, Denmark, the Euro area countries, Japan, Sweden, Switzerland, UK and the US.

Securities issued by companies that have been excluded under the guidelines for observation and exclusion from the Government Pension Fund Global (GPFG) may not be included in the benchmark index for the equity portfolio.

Securities issued by companies with ICB classifications “60101010 Oil: Crude Producers” or “60101015 Offshore Drilling and Other Services” may not be included in the benchmark index for the equity portfolio.

6 Fixed income portfolio

6.1 Investment universe 

The fixed income portfolio may be invested in cash deposits and in nominal government bills and bonds issued in local currency by China, France, Germany, Japan, the UK and the US.

Cash deposits shall be denominated in CNY, EUR, GBP, JPY or USD.

6.2 Benchmark index 

The benchmark index for the fixed income portfolio is a market value-weighted index of all nominal government bonds with residual maturity of between one month and ten years issued by China, France, Germany, Japan, the UK and the US. The currency composition of the benchmark index shall be as follows:

• 50 percent USD
• 34 percent EUR
• 7 percent GBP
• 7 percent JPY
• 2 percent CNY

The benchmark index is rebalanced at the end of every month and is compiled by Bloomberg.

7 Petroleum buffer portfolio

7.1 Investmen universe

The petroleum buffer portfolio may be invested in cash deposits and nominal government bills and bonds issued in local currency by Germany, the UK and the US with residual maturity of up to one year.

Cash deposits shall be denominated in EUR, GBP, USD or other currency received from the State’s Direct Financial Interest (SDFI).

7.2 Benchmark index 

No benchmark index is set for the petroleum buffer portfolio.

8 Limits

Foreign exchange reserves may use financial derivatives that are naturally associated with instruments included in the investment universe.

Foreign exchange reserves may not be invested in securities issued by Norwegian entities.

Sale of securities not owned by Norges Bank is not permitted.

The size of the petroleum buffer portfolio shall be adapted to expected transfers from the GPFG and foreign exchange transactions on behalf of the government. The petroleum buffer portfolio can be used to smooth foreign exchange transactions over time.

The maximum expected relative volatility for equity and fixed income portfolios shall be 0.5 percentage point.

The Governor shall set requirements for monitoring and mitigating counterparty risk, including requirements relating to minimum credit ratings, exposure limits and collateral.

9 Responsible investment

Management of the equity portfolio shall follow the same principles and strategies for responsible investment as the management of the equity investments of the GPFG, including that the responsible management activities of the Bank shall be based on the long-term goal that the companies in the investment portfolio organise their  activities in such a way as to make these compatible with global net zero emission in accordance with the Paris Agreement.

Securities issued by companies that have been excluded under the guidelines for observation and exclusion from the GPFG are excluded from the foreign exchange reserves investment universe.

10 Requirements for valuation, performance measurement and measurement and control of risk

Valuation, performance measurement, and management and control of risk shall be in compliance with internationally recognised standards and methods.

11 Reporting and advising

A quarterly report on the management of the foreign exchange reserves shall be submitted to the Executive Board. The report shall provide an account of management, including a discussion of value changes and return, risk exposure and compliance with principles and guidelines. A summary version of the report shall be published.

An annual assessment of the strategy and investment framework for the foreign exchange reserves shall be submitted to the Executive Board.

12 Guidelines and departures

The Governor lays down guidelines for the management of the foreign exchange reserves and for transfers between the equity and fixed income portfolios.

The Governor is authorised to depart from the principles issued by the Executive Board if warranted by contingency considerations. The Executive Board must then be subsequently informed.

The Governor is authorised to approve non-material departures from the principles issued by the Executive Board if they are warranted by considerations regarding the daily management of the foreign exchange reserves. The Executive Board must then be subsequently informed.

13 Entry into force

These principles enter into force with immediate effect.