Norway’s $1.4 Trillion Fund Is a Model for Planned Colombian Pension Pot

(Bloomberg) -- Colombian regulators are studying Norway’s $1.4 trillion sovereign fund as they seek to safeguard their proposed state pension fund against abuse by future governments.

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Lawmakers in Bogotá are debating a bill that would overhaul the retirement system and create a pool of assets to fund its growing obligations.

Some investors fear that Colombian governments may be tempted to misuse the fund by forcing it to over-invest in local treasuries, and thereby cut their financing costs by driving down yields. However, the rules are being drawn up to prevent this type of maneuver, according to Daniel Quintero, an adviser to the Financial Regulation Unit which would set the guidelines for the new fund.

Norway’s giant fund is a useful guide of best international practices as the Colombia seeks to reassure both workers and investors, Quintero said in an interview earlier this month.

“The Norwegian Fund is a very successful example of how these resources are managed according to technical criteria,” Quintero said.

Norway’s central bank makes investment decisions independently of the government with “maximum possible transparency,” which follows the fund’s mandate, he said.

In Colombia, the new fund will be run by independent trusts and investment firms which will compete to win the management contract. These will follow technical investment policies that promote the proper functioning of capital markets, Quintero said.

Read more: Colombia Bets Public Pension Fund Would Revive Capital Markets

Optimal Allocation

The URF, as Colombia’s regulator is known, recognizes that the rules under which the nation’s private pension managers currently operate probably hamper the creation of an “optimal portfolio” for their clients, Quintero said.

Colombia’s private pension funds have limits on exposure to asset classes, depending on the age of their clients. Quintero said the regulator is studying possible changes.

No decision has been made yet and any regulation will probably come once the pension reform is approved in congress, Quintero said. The pension bill has already been approved by the senate’s labor committee, but still needs several debates in both houses to become law.

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