Norway’s $660 billion sovereign wealth fund, the world’s largest, increased its purchases of emerging market debt to make Mexico its No. 10 bond investment, after reducing holdings of French and Spanish government notes.
The Government Pension Fund Global is moving asset allocation away from Europe as markets in Asia and South America gain a bigger share of global output. The Oslo-based investor raised its bond holding denominated in emerging market currencies to 8 percent of its fixed-income portfolio last quarter, from 1.5 percent at the end of last year.
The fund is reducing its European bond holdings as the region’s debt crisis enters its fourth year. It cut its investment in Europe’s fourth- and second-largest economies even after European Central Bank Governor Mario Draghi in July pledged to do “whatever it takes” to save the euro and later unveiled a bond buying program to bring down interest rates. In the U.S., the Federal Reserve announced a third round of quantitative easing to counter job losses.
“The degree of unconventional monetary policy has been larger than the market participants expected,” Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, which runs the fund, said in an interview today. “In the third quarter, monetary policy has again played a role. And of course, there are limits to what monetary policy can achieve in the long run.”
Europe’s economy contracted 0.2 percent in the second quarter, and the debt crisis has pushed at least five nations into recessions, eroding investor and business confidence in the region.
The fund’s holdings of French government bonds fell 17 percent to 58.9 billion kroner in the quarter, while investments in U.S. and Japanese government debt increased 9 percent and 10 percent, respectively. The fund, which held 19.8 billion kroner in Mexican government debt on Sept. 30, is retooling its bond portfolio to a gross domestic product weighting from a market weighting to avoid nations with growing debt burdens.
“Most still see higher growth rates in emerging markets,” Olav Chen, a senior portfolio manager at Storebrand Asset Management in Oslo, who oversees about $7 billion, said in an e-mailed reply to questions. “Many developed economies will struggle with delevereging for a long while.”
Developing-nation companies and sovereigns sold $287.1 billion of dollar bonds this year, a 59 percent jump from the same period last year, according to data compiled by Bloomberg.
Norway’s Government Pension Fund Global, which has an average holding of 1 percent of the world’s listed companies, returned 4.7 percent, or $29.3 billion in the third quarter as global stock markets recovered after central banks from the U.S. to Japan stepped up efforts to stimulate growth. That compared with a 2.2 percent decline in the previous quarter.
Europe’s largest stock investor, which gets its capital from Norway’s oil revenue, is struggling to meet a 4 percent return target after interest rates plunged to record lows and global stock markets failed to retrace a 2007 peak.
The fund got its first capital infusion in 1996 and has been taking on more risk as it expands globally, raising its stock portfolio to 60 percent from 40 percent in 2007. It first added equities in 1998 and emerging markets in 2000. In 2010, it got approval to invest as much as 5 percent in real estate. It has since bought commercial property in London, Paris, Frankfurt, Berlin and Sheffield in the U.K.
Norway, Europe’s second-largest oil and gas exporter, 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 oil fund invests outside Norway to avoid stoking domestic inflation.
-- With assistance by Emma Charlton in London. Stephen Treloar and Alastair Reed in Oslo. Editors: Tasneem Brogger, Jonas Bergman.