Knut N. Kjær
First head of the Petroleum Fund
The debate about a new central bank governor should be less about dinners and more about expertise.
This is a chronicle. Opinions in the text are at the writer’s expense.
The debate about a new central bank governor is now mostly about dinners and relationships. It should focus on requirements for expertise for some time to come, which will be demanding both in monetary policy and for the Petroleum Fund. In the Storting, it should be reflected on why a structure has been created where it is almost impossible to make a good choice of leader.
The position as central bank governor has been given very great power, perhaps unique in recent Norwegian history. The boss wears a lot of hats and is in an ongoing conflict of interest which in certain situations can become serious.
In the spring of 2019, the Storting considered the council from a committee led by former central bank governor Svein Gjedrem to split the position in two and separate the Petroleum Fund from Norges Bank. Despite the fact that it was the Storting itself that asked the committee to consider this issue, the politicians chose to ignore the recommendation. The Storting did not even want an open hearing on this very important issue.
A very clear warning
“If the fund is to be managed by the bank, the management structure will be complicated and the scope of the central bank governor’s tasks large. Few people will have the experience background and breadth of expertise required to cover both businesses. There will be a risk that failure in asset management may weaken confidence and reputation also in the central bank’s activities and the central bank’s independent position. ” The warning from the Gjedrem committee could hardly have been clearer.
The board that Minister of Finance Siv Jensen appointed for Norges Bank in late 2019 has startlingly large shortcomings in its expertise.
In addition to operating the central bank, this board will lead the world’s largest fund. The board consists only of Norwegians, lacks financial expertise at the global level, lacks the competence to overlook the role of owner in large and heavy companies around the world and does not have significant expertise on climate risk in financial portfolios.
The board is hardly highly competent to assess the consequences of geopolitical development and weakened democratic governance to capital markets and further to what security we have in the future for our values. As is well known, the Petroleum Fund is invested in securities, and owners of shares and bonds are exposed to political changes and weakenings in legal certainty and property rights.
As far as I know, this board has not provided important input to the Ministry of Finance and the Storting on challenges facing the Petroleum Fund over the next 10–20 years, despite the fact that the Storting’s dependence on current returns is far higher than previously expected.
After leading the management of the Petroleum Fund for ten years, I have been a member of boards and committees in comparable, large funds in other parts of the world. Based on this experience, I ask the question whether we in Norway are becoming naive in our way of managing the Oil Fund. We need far more expertise and insight into the management and leadership of the administration than we find in the central bank’s board.
We need far more expertise and insight into the management and leadership of the administration than we find in the central bank’s board
In 2019, the Storting was open to the question of the investment of the Petroleum Fund in Norges Bank having to be reconsidered as to whether management became more demanding and complicated. This is about to happen.
Investments in large, green energy projects have been added. A committee has recently recommended a far more active strategy for managing climate risk, which places significantly greater responsibility on the board. Similarly, a new committee has made recommendations on how the return can be increased. This can also place a greater responsibility on the board. In the autumn, recommendations will come from a committee that will just think far ahead and prepare the Petroleum Fund for more demanding geopolitical and market conditions. It will surprise me if this committee also does not point out further needs for management competence.
An ongoing conflict of interest
The Governor of the Central Bank is in an ongoing conflict of interest in that information received from other central banks may also be used in the management of the Petroleum Fund. In a serious crisis where both the world’s central banks must act together and where the capital markets are in free fall, it may be unclear which hat the central bank governor is wearing. It can affect both the bank and the Petroleum Fund.
It is inconceivable that Singapore would have been best served with everything under one roof and with one boss
From the time we started building the Oil Fund, the large government fund in Singapore, GIC, was our role model for professional and solid management. Later I have been a member of this board’s investment committee and a close adviser. GIC started as NBIM at the central bank, but became a separate business 40 years ago. I also know the central bank well as an adviser.
It is inconceivable that Singapore would have been best served with everything under one roof and with one boss. GIC and the central bank are two very different and specialized companies, and both are among the best in the world, at the same time as they are also deeply rooted as national institutions.
In Norway, we are disabled in that it seems impossible to find the ideal candidate as central bank governor. This was announced by the Gjedrem committee. For the media and politicians, it is probably easier to discuss dinners and relationships than to go deep into future requirements for competence and management.