World’s Biggest Wealth Fund Looks Past Trump Amid Bleak Outlook

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  • Fund wants to raise stock holding to 75% of portfolio
  • Sees returns below 3% over the next decade amid low rates

In the decades-long view of Norway’s $860 billion wealth fund, the presidency of Donald Trump will play an insignificant role.

Even as the reality TV star’s new economic advisers pledge to double U.S. economic growth, which in turn could spur global demand, the world’s biggest wealth fund on Thursday presented a bleak outlook on returns ahead.

Egil Matsen

Photographer: Krister Soerboe/Bloomberg

“We have a very long-term perspective as a basis for our projections,” Egil Matsen, deputy governor at Norway’s central bank in charge of wealth fund, said in an interview after a speech in Oslo on Thursday. “We have of course observed what happened in the U.S. presidential election, but that hasn’t impacted our projections in a significant way.”

The fund on Thursday asked the government for permission to raise its stock holdings to 75 percent and to dump bonds, which are expected to deliver near zero returns over the next decade. Even with a new super-sized equity portion, the fund expects to deliver an annual real return of only 3.5 percent over the next three decades.

“In our analyses, this is clearly evident in global data, internationally, growth in firms’ cash flows and equity returns is correlated with growth in the global economy,” Matsen said in a speech. “Global economic growth in the coming years is expected to be below its historical level. This ‘pessimism’ is partly related to the driving forces behind the low level of the real interest rate.”

The final decision will be made by parliament. The fund’s recommendation comes after a government-appointed commission suggested it should raise its stake in stocks as record low interest rates and a weak global economy will otherwise cut returns to just above 2 percent a year over the next three decades.

Lawmakers have warned that Trump’s protectionist agenda poses a threat to efforts by the Norwegian fund to expand its equity holdings.

"We will follow the political debate closely and believe it’s important that political risk linked to the international stock market is reflected in the considerations as well,” said Torstein Tvedt Solberg, a lawmaker for the Norwegian Labor Party, the biggest opposition group, in an e-mail on Thursday.

Trump’s election could also give the fund reason to review its investments in the U.S., where it holds about $320 billion combined in stocks, bonds and real estate, Tvedt Solberg also said last month.

“It will be interesting to see if more protectionism leads to larger restrictions on foreign ownership,” he said. “We have big real estate investments, in addition to equity investments.”

Norway is looking for ways to boost returns after missing a real return goal of 4 percent. The government has this year withdrawn money from the fund for the first time to make up for lost oil income after crude prices collapsed.

After getting its first capital infusion 20 years ago, the fund has added risk, expanding into stocks in 1998, emerging markets in 2000 and real estate in 2011 to safeguard the wealth of western Europe’s largest oil exporter.

It’s currently mandated to hold 60 percent in stocks, 35 percent in bonds and 5 percent in real estate. After inflation and management costs, it has returned 3.44 percent a year over the past 10 years and 8.25 percent a year over the past five.