Research Paper: “Why Denmark should establish a Sovereign Wealth Fund”

By Kristian Flyvholm, CEO of Sovereign Investors and Former CEO of IFSWF  

September 2024.

Executive Summary: Denmark should set up a SWF by expanding the debt management framework and on-lending program to carve out a debt-financed SWF with a clear macroeconomic objective and long-term investment horizon. This could create both new sovereign wealth, ensure fiscal resilience and intergenerational equity, while also assisting in funding climate change ambitions and innovations.  

This research paper discusses the experience of Norway, Australia and New Zealand; peer countries for Denmark to consider and study on how they created some of the most successful sovereign wealth funds (SWFs) from 1998-2006 and obtained long-term returns ranging from 6-10% since inception, while also promoting transparency, sustainability and long-term macroeconomic thinking. 

A new Danish SWF could be financed by issuance of long-term (2052) bonds with a cost of about 2.5%. Were Denmark to mimic the long-term performance of Norway, Australia and New Zealand, the new SWF could pay back its entire debt by 2033-2040, while leaving sizable net assets for the future generations. 

The real question is not why Denmark should create a SWF, but rather why should we not? This research paper shows how this can be done within the existing macroeconomic framework and debt management principles in Denmark.  

Call for Action: The Ministry of Finance should lead the way and draw up the White Paper on the case for a SWF for Denmark.  An expert group from the Danish Central Bank and experts from academia and the private sector should be part of the task force, while seeking public consultation may also be valuable. The White Paper should be discussed in Parliament and enacted in legislation resting on the pillars of best practice and good governance for SWF management.