dc.description.abstract | The Norwegian Government Pension Fund Global enjoys the position of being
one of the largest global sovereign funds in line with Abu Dhabi Investment
Authority, China Investment Corporation and Saudi Arabian Authority with
accumulated assets of more than $1 trillion. However, miraculous its depletion
may look, this issue is already attracting attention as its rst payouts to the
National Budget started in 2016, so that given stable but unsustainable payout
rate, the Fund, created to provide perpetual bene t to Norwegian generations,
may be depleted within much limited timeframe. The current payout rule or
handling regler was set at the level of 3 percent and linked to expected real
returns on the Fund
s portfolio that are currently estimated at above 3% y-o-y,
but these expectations are subject to mistake and bias. This paper argues that
given the Fund
s goal to preserve the purchasing power of its endowment, the
payout rate must be strictly below the average expected return on the Fund for
two reasons: (i) if returns are variable, the rate of the Fund
s growth will be
less than the average expected return, and (ii) asset returns demonstrate long
cycles over long horizons, with extended period of average returns below the
long-term average. Given an expected real rate of return after management
costs of 3.6%, based on historical simulations, we believe that the current
Fixed 3% payout rule is sustainable because it e ectively protects the Fund
s
corpus in the long run. However, if the ability to ensure stable and slightly
countercyclical payouts is of great importance, the Average payout rule is a
viable alternative. | nb_NO |