- Outflows from fund to government were 21 billion kroner
- Fund continued to add emerging markets in first three months
Norway’s $870 billion sovereign wealth fund, the world’s biggest, returned to losses in the first quarter amid some of the most turbulent markets since the financial crisis as the government started withdrawals.
The Government Pension Fund Global lost 85 billion kroner ($10 billion), or 0.6 percent, after rising 3.6 percent in the fourth quarter, the Oslo-based investor said on Thursday. Its stock portfolio lost 2.9 percent, its bonds gained 3.3 percent and the real-estate investments fell 1.3 percent.
The fund, which reported its biggest loss in four years during the third quarter of 2015 before bouncing back at the end of the year, was whipsawed by turbulent markets amid concerns over growth in China and a rout in commodities. The decline comes as the government made its first ever withdrawal to cover budget needs amid a slump in taxes from oil production.
“The two first months of 2016 were characterized by high market volatility and concerns for a Chinese slowdown,” NBIM Deputy Chief Executive Officer Trond Grande said in a statement. “The turbulence eased considerably in March.”
Norway is at a crossroads as the government of western Europe’s biggest oil producer, pressured by a collapse in crude prices, is forced to dip into its piggy bank for the first since it was set up in the 1990s. Government withdrawals from the fund totaled 21 billion kroner in the first quarter, it said Thursday.
In an interview on Thursday, Grande said that so far there have been “very modest outflows.”
“It hasn’t really changed our plans,” he said. “On the margin of course, you know that you don’t have new funds, you have some funds that will go the other way, that go out of the fund, and you will take that into account in your trading book.”
The fund, which received its first capital transfer in 1996 and gets investment guidelines from the government, held 59.8 percent in stocks, 37 percent in bonds and 3.1 percent in real estate at the end of the first quarter. It’s mandated to hold 60 percent, 35 percent and 5 percent in those asset classes, respectively, though the government has proposed to raise the cap on properties.
It continued to add emerging market stocks in the first quarter, and holds 9.5 percent of its stock portfolio in those markets. In fixed income, 12.7 percent of its holdings were in emerging markets, with the biggest share in the Mexican peso.
“We’re always looking at new markets,” Grande said. “I think the majority of the push into emerging markets is behind us, absolutely. We’ve kind of gone through the biggest ones, whatever comes after this will be smaller things.”
The return in the first quarter trailed the benchmark set by the Finance Ministry by 0.2 percentage point.