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Norway’s $1t oil fund worried over market crisis

Norway’s $1t oil fund worried over market crisis

OSLO: Its equities and bond investments dropped 23% that year. But the world’s largest sovereign wealth fund was saved by both a big inflow of money from Norway’s petroleum revenues as oil prices remained high and a large boost from the exchange rate as the krone weakened, Yahoo reported.

Many are now wondering what would happen to Norway’s $1 trillion oil fund if things are different in the next crisis. The fund itself warned last week that a crash could wipe away more than 40% of its value, particularly if the Norwegian krone became a safe haven currency and strengthened.

That has many experts worried that one of the few sovereign wealth funds located in a democracy could be drained rapidly in a real market crisis.

“The fund is untested in a crisis. The political system is untested in a crisis. By being poorly prepared we are running the risk of screwing the fund,” says Espen Henriksen, associate professor at the BI business school in Oslo and an ex-fund official.

The problem is that Norway’s government has become increasingly used to the doping the oil fund provides for the state budget. Under the so-called spending rule, which was revised last year, the government is allowed to use up to 3% of the fund annually.