Oil fund reports best results ever
November 10, 2009
Norway’s huge pension fund fueled by oil revenues recovered from heavy losses earlier in the year to report its best quarterly results ever on Tuesday. The enormous earnings on the fund’s investments were pumped up mostly by gains in the stock market.
Just a few months ago, the boss of the fund that’s officially called Statens pensjonsfond – Utland , was the target of heavy criticism. On Tuesday, Yngve Slyngstad could smile from ear to ear after reporting a gain of NOK 325 billion in the third quarter and returns of 13.5 percent.
The staggering number amounts to 70 percent of gross national product for Norway’s mainland economy (excluding its offshore oil and gas). Total market value of the fund hit NOK 2,549 billion, including NOK 49 billion in new funds turned over by the Finance Ministry.
The strong Norwegian currency reduced the value of its foreign holdings by NOK 211 billion, but that was offset by the rise in the stock market.
“The trend of the second quarter continued into the third quarter, with strongly rising markets,” said Slyngstad, who heads Norges Bank Investment Management (NBIM), which runs the oil fund.
Returns on the fund’s shares in companies all over the world rose 17.7 percent. The fund’s stake in shares is 60 percent, which caused heavy losses when markets crashed late last year as the global finance crisis took hold.
The fund also has dramatically reduced its number of external managers, with Slyngstad saying they now have responsibility for the smallest share of the fund since it was established in the 1990s.External managers got a lot of the blame for the earlier losses, and sparked charges that they had raised the risk level of the fund, which is meant to set aside and invest oil revenues for future generations. Use of the external managers was also expensive, with the fund paying out NOK 907 million in management fees last year, up from NOK 781.9 million in the previous year, reports web site e24.no.
Now they’re managing only 13 percent of the fund as measured in terms of market value, the lowest level ever, Slyngstad pointed out.
He also noted that last year’s losses prompted adoption of a more “conservative line” this year. He said he sees “positive development” in the fourth quarter but that uncertainties remain. “Both the uncertainties and the challenges will be major,” he said.