Norway’s $620 billion sovereign wealth fund, Europe’s largest equity investor, saw its assets decline 2.2 percent last quarter as stocks fell on concern the euro area’s debt crisis would hamper a global recovery.
The Government Pension Fund Global lost 77 billion kroner ($13 billion) on its investments, as measured by a basket of currencies, it said in a statement published out of Oslo today. Equity investments slipped 4.6 percent, while the fund’s bonds returned 1.5 percent.
“A weaker than anticipated development in the world economy weighed on stock markets in the second quarter,” Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, which runs the fund, said in a statement. “There was also increased uncertainty about the repercussions of the European sovereign debt crisis.”
Investors sold stocks as European leaders struggled to contain the euro area’s debt woes in the quarter. Spain in June became the fourth euro nation to seek a bailout as the currency union’s fourth-largest economy asked for loans to rescue banks pummeled by a real estate slump now in its fifth year.
The MSCI World Index of stocks dropped 5.8 percent last quarter. Ten-year yields on Spanish government debt rose above 7 percent to a euro area record on June 18 -- a level that pushed Greece, Portugal and Ireland to seek international aid. Borrowing costs on Italian 10-year debt also rose to above 6 percent on concerns about contagion.
The Norwegian fund is in the midst of a strategy shift to reduce its bond and stock holdings in Europe to capture more global growth as it struggles to meet a 4 percent return target.
The fund reduced its holdings of bonds issued in European currencies in the quarter to 48.1 percent of total fixed-income investments from 51 percent, it said. It also boosted the share of bonds in American currencies to 40.1 percent and increased the portion of bonds in currencies of Asia and Oceania to 11.6 percent.
The changes were in line with its strategy to gradually reduce the share of bonds in currencies of developed European nations, it said. The fund in the quarter also increased investments in government bonds in the currencies of emerging economies such as China, Brazil and India, it said.
The holdings of German bunds rose to 58 billion kroner in the period, up from 38 billion kroner as of March 31. The fund’s investments in U.K. government bonds slid to 82 billion kroner from 89 billion kroner, and its French government holdings declined to 71 billion kroner from 80 billion kroner.
At the end of June, the fund held 59.6 percent of its assets in stocks, 40.1 percent in bonds and 0.3 percent in real estate. It’s mandated to hold 60 percent in stocks, 35 percent in bonds and 5 percent in real estate. The fund is managed by the central bank and gets guidelines from the Norwegian government.
The fund’s largest stock holding at the end of the quarter was Royal Dutch Shell Plc, while its biggest bond holding was U.S. Treasuries.
Norway’s government deposited 72 billion kroner of oil revenue into the fund in the quarter. The fund’s result missed by 0.2 percentage point the benchmark set by the Finance Ministry.
The Oslo-based investor 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 equities in 1998, emerging markets in 2000 and this year real estate to boost returns and safeguard wealth.
Norway, a nation of 5 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, the country’s largest energy company. The Nordic nation is the world’s second-largest gas exporter and the seventh-biggest oil exporter. The oil fund invests outside Norway to avoid stoking domestic inflation.