Norway Oil Fund Lost $52 Billion in Quarter as Crisis Roils
Norway’s sovereign wealth fund lost 284 billion kroner ($52 billion) in the third quarter, its second-worst quarterly drop, as stock markets slumped on concern Europe’s debt crisis would derail the global recovery.
The $570 billion Government Pension Fund Global, Europe’s largest stock investor, lost 8.8 percent, as measured by a basket of currencies, the Oslo-based fund said today. The fund’s stocks fell 16.9 percent and its bonds rose 3.7 percent.
“Europe’s debt crisis and fears of a global economic slowdown weighed on stocks in the quarter,” said Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, which manages the fund. “Most of the fund’s new capital was placed into equities to exploit the declines and take advantage of our long-term perspective.”
Investors dumped stocks on concern European leaders would fail to contain a debt crisis that threatens to stall global growth and after the Federal Reserve said there are “significant downside risks” to the U.S. economy. The MSCI World (MXWO) Index of stocks posted its worst quarterly drop since the end of 2008, when Lehman Brothers Holding Inc. collapsed.
European leaders and bank representatives at a summit this week agreed on expanded measures to lead a way out of the crisis, including writing down Greece’s debt by 50 percent and boosting the rescue fund to 1 trillion euros ($1.4 trillion).
‘Significant’ Buying
Slyngstad said the fund bought “significant” amounts of stocks in the quarter, and that after a rally since the end of the period the fund is down about 1 percent as of yesterday.
The Norwegian fund, which is part of the central bank and gets guidelines from the government, held 55.6 percent in stocks, 44.1 percent in bonds and 0.3 percent in real estate at the end of the quarter. It’s mandated to hold 60 percent in stocks, 35 percent in bonds and 5 percent in real estate, which it first bought this year.
The largest stock holding in the quarter was Royal Dutch Shell Plc. The largest bond holding was in U.S. Treasuries, followed by U.K. and French government bonds. The fund reduced its holdings in Italian debt 28 percent to 44 billion kroner and its Spanish government debt investment fell 17 percent to 19 billion kroner.
In total, the fund held 71.6 billion kroner in bonds from Greece, Ireland, Italy, Portugal and Spain, which was 50.1 billion kroner below what the benchmark index suggests.
Benchmark Shift
The fund has changed its internal benchmark portfolio, reducing it to 4,000 bonds from 11,500 bonds and keeping primarily corporate and government debt, Slyngstad said at a presentation today. The fund also weighted its euro government bond holding according to gross domestic product rather than the size of the market, which it had earlier proposed as a way of reducing its holdings in nations with increasing debt.
The government was “fully aligned” with the changes, Slyngstad said.
The fund lost a record 633 billion kroner in 2008, when a financial crisis erupted following the collapse of Lehman. The fund responded to the rout by increasing its stock holdings, which helped it post a 26 percent return in 2009 and a 9.6 percent gain in 2010.
The government deposited 78 billion kroner of petroleum revenue into the fund in the third quarter. The return missed by 0.3 percentage point the benchmark set by the Finance Ministry.
Capital
The fund got its first capital infusion in 1996 and has been taking on more risk as it expands globally, raising its stock portfolio from 40 percent in 2007. It first added stocks in 1998, emerging markets in 2000 and this year real estate to boost returns and safeguard wealth.
Norway, a nation of 4.9 million people, generates money for the fund from taxes on oil and gas, ownership of petroleum fields and dividends from its 67 percent stake in Statoil ASA (STL), the country’s largest energy company. Norway is the world’s second-largest gas exporter and the seventh-biggest oil exporter. The fund invests outside Norway to avoid stoking domestic inflation.
To contact the reporter on this story: Josiane Kremer in Oslo at Jkremer4@bloomberg.net
To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net
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