Norway eyes oil fund revamp after woeful 2008

By Wojciech Moskwa and Aasa Christine Stoltz

OSLO (Reuters) - Norway's Finance Ministry said on Friday it would review the active management of part of its $300 billion (203.16 billion pounds) wealth fund after Europe's largest equity investor lost 633 billion crowns (68.85 billion pounds) on its investments in 2008.

The ministry said it was not planning to change the overall investment strategy of the fund, which invests Norway's oil and gas wealth in foreign stocks and bonds.

The central bank-run Government Pension Fund -- Global, commonly known as the "oil fund", is the world's second largest sovereign wealth fund.

Its active management of selected parts of its portfolio has turned sour during the global crisis. Bad investments, mostly in U.S. securitised bonds, led it to underperform the index-linked benchmark set by the government by a record 3.4 percentage points in 2008 and wiped out investment gains from past years.

"It is clear that the financial crisis has uncovered weaknesses in the active management by Norges Bank," Finance Minister Kristin Halvorsen said, announcing an external review of the central bank's risk and active management of the fund.

"This will provide a basis for a broad assessment in the spring of 2010 of whether or to what extent active management is to be continued," Halvorsen added.

Halvorsen stressed that the government did not intend to strip the oil fund completely of its discretionary role.

"The regulations for active management must also provide room for discretion to ensure that the responsibilities vested in the governing bodies of Norges Bank are not transferred to the (finance) ministry in practice," Halvorsen said.