Optimal Equity Share in the Norwegian Government Pension Fund Global in Terms of the Downside Risk

Abstract

Being a sovereign wealth fund (SWF), the Norwegian Government Pension Fund Global (NGPFG) operates in a political environment and must adapt to several considerations. We address to what extent the combination of equity share and payout policy influence the downside risk of the fund. Our results show that today’s composition of the fund is sustainable in terms of the trade-off between maintaining both today’s expected payouts and the real fund value and controlling the downside risk.