Norges Bank has advised the Ministry of Finance against imposing caps on individual markets, sectors or companies in the Government Pension Fund Global equity benchmark, despite rising geopolitical and concentration risks. It argues that current concentration must be accepted as a feature of a market-weighted index because caps would be imprecise, add complexity and transaction costs, and could exclude companies with the strongest prospects. Consistent with its separate bond-strategy assessment, the bank emphasizes broad diversification rather than targeted limits. Geopolitical stress tests indicate that severe global fragmentation could reduce the fund’s value by 30% to 40%, while scenarios in which artificial intelligence fails to meet earnings and productivity expectations produced estimated declines of 18% and 35% in 2024 and 2025, respectively. Concentration has risen mainly because of U.S. equities and AI-related expectations, leaving much of the index exposed to common risks such as technology regulation, semiconductor access and returns on AI infrastructure. Diversification cannot fully protect the fund from shocks spanning markets and asset classes, and its size limits rapid divestment during a crisis. The bank sees grounds to assess whether a larger allocation to unlisted assets could broaden the fund’s risk exposures and reduce the influence of listed-equity concentration over time. Any increase would need to be gradual, reach sufficient scale to affect the overall risk profile, and undergo a thorough assessment of its benefits and risks.
2026-09-02Norges Bank
Norway's Norges Bank advises against equity index caps, warns geopolitical shocks could cut fund value 30% to 40%
Norges Bank advises against caps on markets, sectors or companies in the Government Pension Fund Global equity benchmark, arguing that broad diversification remains preferable despite rising concentration. Its stress tests indicate geopolitical upheaval could cut the fund’s value by 30% to 40%, while AI-related scenarios produced estimated losses of 18% and 35%. The bank suggests assessing whether greater unlisted-asset exposure could broaden risk sources over time.