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Diversification

In: Investment Beliefs

Author

Listed:
  • Kees Koedijk

    (Tilburg University)

  • Alfred Slager

    (Tilburg University
    Stork Pension Fund)

Abstract

Many investors would not consider swapping oil for equities a good diversification deal. Yet it paid off remarkably well for the Norwegians. Windfall wealth is a once-in-a-lifetime opportunity that ultimately challenges decisionmakers on whether to use it for pet projects now, or save it and increase longterm wealth. The Dutch chose the former in the 1970s, spending income from natural gas and earning the dubious title of “the Dutch Disease” when inflation spun out of control. When the Norwegians hit oil in the 1980s, they took the latter approach and set oil income apart. It has helped the average Norwegian in the rankings. In the early 1970s, per capita wealth was $4,000, but today it is close to 35,000.1 The Government set up the Government Petroleum Fund, later renamed Government Pension Fund Global, with the purpose of investing the country’s oil wealth. Managing around $2,275 billion, it is invested almost entirely overseas and managed by the Norges Bank Investment Management (NBIM), which is the central bank’s investment management department.2

Suggested Citation

  • Kees Koedijk & Alfred Slager, 2011. "Diversification," Palgrave Macmillan Books, in: Investment Beliefs, chapter 7, pages 67-76, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-30757-5_7
    DOI: 10.1057/9780230307575_7
    as

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