Greasing the Wheels: How Norway’s Sovereign Wealth Fund Ended Up Financing Russian Corruption

Norway’s Government Pension Fund Global (GPFG) is one of the largest sovereign wealth funds in the world. Established in 1990 to diversify Norway’s oil wealth and minimize negative consequences associated with fluctuations in commodities markets, GPFG has amassed close to $1.3 trillion in assets. In keeping with Norway’s sterling reputation for integrity, GPFG has embraced anticorruption as one of the fund’s guiding principles. In fact, GPFG requires the companies in which it invests “to identify and manage corruption risk, and to report publicly on their anti-corruption efforts.” The fund’s Council of Ethics has also declared that the fund will keep “gross corruption” out of its portfolio, and GPFG has been widely praised for its social responsibility (see here and here).

Yet despite all this, GPFG has not avoided corruption-related scandals, particularly with respect to its investments in Russia. Understanding how things went wrong offers more general lessons for how sovereign wealth funds can strengthen their safeguards against investing in corrupt companies and supporting corrupt regimes. Continue reading

Managing Corruption Risk in U.S. Public Pension Funds

Public pension funds provide retirement benefits for government employees, such as firefighters, teachers, and police officers. In the United States, the pension funds of state employees are typically managed by a board of trustees that is generally comprised of investment professionals, beneficiary representatives, and individuals appointed by state elected officials. (Fund governance structures vary somewhat from state to state.) These trustees then exert tremendous influence over the allocation of pension assets to different investment vehicles, such as private equity and hedge funds. While individual pension funds vary in size, the total amount of money involved is enormous: Public pension fund managers in the United States are responsible for allocating over $5.5 trillion in assets across different investment vehicles.

How pension managers select among different investment opportunities remains a largely opaque process. This lack of transparency—coupled with broad investment discretion—fosters a substantial risk of corruption. Such corruption can take several different forms:

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