Nor­way's sov­er­eign wealth fund has worst year since 2011

The Pak Banker - - 6BUSINESS -

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.

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