Norway's sovereign wealth fund has worst year since 2011
Norway's sovereign wealth fund, the world's biggest, had its worst year since 2011 as its equity portfolio delivered its weakest performance in half a decade.
The $830 billion Government Pension Fund Global returned 2.7 percent in 2015, after rising 7.6 percent the previous year, the Oslo-based investor said on Wednesday. Stocks gained 3.8 percent, bonds rose 0.3 percent, and real estate investments grew 10 percent. The fund's holdings overall gained 334 billion kroner ($39 billion) last year.
"2015 was a volatile year, with negative interest rates, currency turmoil, falling oil prices and weaker growth expectations for emerging markets," Chief Executive Officer Yngve Slyngstad said in a statement. "The fund made fewer, but larger real estate investments."
Despite the continued climate of volatility, the fund managed to bounce back from two consecutive quarters of losses, catching a stock rally at the end of 2015 as it raised stakes in equities and sold off bonds, Slyngstad said in an inter- view in December. These gains were most likely erased this year amid renewed equity market unrest and as the oil-dependent Norwegian government made its first ever withdrawals from its massive piggy bank.
Central bank Governor Oeystein Olsen said last month he expects the government to withdraw 80 billion kroner from the fund this year and that 2015 may have been the last year with net inflows to the fund. The plunge in oil prices has choked off petroleum revenue to the government, which is also increasing spending to plug budget deficits.
This year could mark a "significant shift" in the fund's history, Olsen said on Wednesday. He also predicted that the returns delivered by the fund will be "increasingly important" to the Norwegian economy.
Inflows, which come from petroleum taxes, the state's direct ownership in oil and gas fields and dividends from Statoil ASA, amounted to 42 billion kroner last year, the fund said in its report.
Still, the investor has insisted it's not being forced to follow a selloff by other sovereign funds in petroleum producers such as Saudi Arabia. Cash flow from dividends, interest payments and rental fees is enough to both cover the withdrawals and to feed a strategy shift into emerging markets, the Norwegian wealth fund executives have said.
Its biggest stock holdings were in Nestle SA, Apple Inc. and Roche Holding AG. Its largest government bond investments were in the U.S., Japan and Germany. The fund invested 44.2 billion kroner in unlisted real estate in 2015.
Since receiving its first capital transfer in 1996, the fund has been getting investment guidelines from the government. It held 61.2 percent in stocks, 35.7 in bonds and 3.1 percent in real estate at the end of 2015. That compares with a mandate to hold 60 percent, 35 percent and 5 percent in those asset classes, respectively.
The fund is lobbying the government to be allowed to boost its stock allocation and start investing in infrastructure and private equity to raise returns. Its real return target is 4 percent. Its 2015 return beat the benchmark set by the Finance Ministry by 0.5 percentage point.