Norway’s Oil Fund Posts 13.5% Gain as Stocks Rally (Update2)

Nov. 10 (Bloomberg) -- Norway’s sovereign wealth fund, the world’s second largest, rose a record 13.5 percent in the third quarter as stocks rallied on signs the global recession ended.

The Government Pension Fund - Global climbed 325 billion kroner ($58 billion) as measured by a weighted basket of currencies, the central bank said today. The share portfolio of the 2.55 trillion-krone fund, Europe’s biggest stock owner, climbed 17.7 percent and its bond holdings gained 7.2 percent.

“This is the highest return we’ve ever had,” Yngve Slyngstad, head of Norges Bank Investment Management, told reporters in Oslo. “We’ve had two years of turmoil in financial markets. The uncertainty has fallen dramatically over the last two quarters.”

The fund returned 529 billion kroner in the year’s first nine months, recovering after a plunge last year erased gains since it started investing Norway’s oil and gas revenue in 1996. It raised its stake in stocks to 62 percent in the quarter, which paid off after the MSCI World Index rose 17 percent in the period and Europe’s Dow Jones Stoxx 600 Index gained 18 percent, the best performance this decade.

Excess Return

Norway’s government pumped 49 billion kroner into the fund in the quarter. The return was 1.5 percentage points above the benchmark set by the Finance Ministry. Norway’s central bank runs the fund, while the ministry sets guidelines. Fixed-income management produced an excess return of 3.3 percentage points, while equities beat the benchmark by 0.2 percentage point.

The fund owned an average 1 percent of the world’s listed companies at the end of the third quarter, with an average 1.8 percent in Europe and 0.7 percent in the rest of the world. HSBC Holdings Plc was the fund’s largest stock holding at the end of the quarter, valued at 21.5 billion kroner, followed by Royal Dutch Shell Plc and Nestle SA. Shell dropped from being the biggest at the end of the second quarter.

U.S. government bonds were the biggest bond holding at 88.6 billion kroner, while German bonds came second and U.K. bonds, last quarter’s biggest, slipped to third.

External Mandates

External equity management fell by 25 billion kroner, while external fixed-income management slipped by 19 billion kroner. The fund has cut the number of external mandates for fixed- income investments after so-called active management contributed to the fund’s 633 billion kroner loss last year.

“External fixed income management is now at its lowest level since 2003,” NBIM said. “This is related to last year’s decision to phase out mandates for investments in securitized debt, particularly in the U.S.”

The fund won’t award any new mandates to manage its bond holdings this year, although it may do so next year, Slyngstad said in an interview after presenting the results.

Norges Bank Investment Management named a new team of executives in August, including Mark Clemens from Citigroup Inc. as chief administrative officer and Jessica Irschick from UBS AG as chief treasurer. It promoted Bengt Enge to chief investment officer and Trond Grande to chief risk officer and named Dag Dyrdal chief of strategic relations.

The fund is looking for a head for the new real estate asset strategies group. “It won’t be announced until after Christmas,” Slyngstad said. It plans to start investing in real estate in the first quarter and is in talks with “several major” property companies in the U.K. on setting up a joint venture, he said.

Norway has the second largest sovereign wealth fund in the world after Abu Dhabi, according to the Roseville, California- based Sovereign Wealth Fund Institute. A sovereign wealth fund is a state-owned investment fund with financial assets such as stocks, bonds and real estate.

The country is the sixth-largest oil exporter and the second-largest gas exporter.

To contact the reporters on this story: Vibeke Laroi in Oslo at vlaroi@bloomberg.net; Marianne Stigset at mstigset@bloomberg.net

To contact the editor responsible for this story: Hellmuth Tromm at htromm@bloomberg.net Z NO <Equity> CN