Risk takers' day

Yesterday the governor of the central bank of Norway confirmed that over the last 6 months more than 120 billion US$ of the Norwegian Oil Fund savings have been lost on Wall Street. This is more than a quarter of the money that should compensate for pension payments that an ageing workforce cannot support. Active fund management – fund managers picking "winners" like Lehman Brothers – has exacerbated the loss. If they had abstained from this and followed the indexes, we would have been almost 10 billion US$ better off today. Admittedly it is mostly paper losses for now, but given better times it will take many decades just to regain them.

The governor also confirmed that over the years the fund has been miserably managed. Since its inception in 1998 the annual real return rate on the capital has been only 1 per cent. Had managers stuck to the Treasury's benchmark portfolio, return would probably have come closer to the target of 4 per cent per year and passive management of bond could have delivered 6 pct.

Too high a proportion of shares is probably to blame. The bond part of the portfolio lost only 0.5 pct in value while shares lost 40 pct. For good measure a new strategy proposed by fund managers and agreed by Parliament before the meltdown is now being implemented to increase the proportion of shares in the fund from 40 to 60 pct. Higher risk exposure is exactly what we need!

According to the central bank governor there are not many places beside shares to invest for a fund this size and in the long run it is always lucrative to own a big part of the world's industries.

Well, some of them could actually go bust, and in the long run, as J.M. Keynes said, we are all dead.

It is not thawing yet.