Record-high return for Norway’s oil wealth fund in 2Q

Yngve Slyngstad. Photo: Norges Bank.

Yngve Slyngstad. Photo: Norges Bank.

International equity and fixed income markets showed a marked improvement in the second quarter. The return on the Government Pension Fund – Global was 12.7 percent (NOK 270 billion) and the excess return 2.1 percentage points, the best quarterly result ever. In the second quarter, the fund reached the targeted equities allocation of 60 percent, after a two year transition period.

“The positive development in the second quarter has continued into the third quarter. Since the markets turned in March and up until today, the value of the fund has increased by more than NOK 600 billion,” says CEO of Norges Bank Investment Management (NBIM) Yngve Slyngstad.

The return on the fund was NOK 270 billion in the second quarter. Transfers to the fund were at NOK 40 billion, on a par with the first quarter but markedly lower than the previous years. NOK 84 billion has been transferred to the fund since the beginning of the year, compared with NOK 384 billion for the whole of 2008. The value of the fund increased to NOK 2 385 billion, a rise of NOK 309 billion since the end of the first quarter.

“Economic developments showed clear signs of stabilising in the second quarter and the uncertainty around the financial sector decreased. Liquidity is beginning to return to a number of fixed income markets,” says Slyngstad.

The fund’s equities share reached 60.3 percent at the end of the quarter after two years of phasing in equity purchases since summer 2007, when it was decided to increase the allocation to equities from 40 to 60 percent. In the course of the phasing-in period, the fund has purchased equities for more than NOK 1,000 billion. During the same period, the fund’s ownership interests in global equity markets have more than doubled from 0.4 per cent to 1.0 per cent. Ownership in Europe came to 1.7 percent at the end of the second quarter.

The return was the highest in any one quarter in the fund’s history. The increase was also higher in percentage terms than previous quarters’ declines. Of the excess return of 2.1 percentage points in relation to the benchmark portfolio, fixed income management contributed an excess return of 3.7 percentage points, while the excess return from equity management was 0.7 percentage point.

The Fund’s active ownership strategy was revised in the second quarter and water resource management was introduced as a new focus area. The quarter also brought an important breakthrough in industry cooperation to combat child labour.


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