Oil fund continues to suffer
August 12, 2011
Norway’s sovereign wealth fund, known officially as the “Government Pension Fund – Global” and unofficially as the “oil fund,” continues to lose value in the current international financial climate, with second quarter figures released on Friday suggesting that the outlook for the fund has not been particularly positive for much of the year.
The fund managed just a 0.3 percent yield on its investments in the second quarter of 2011, relying on fixed-income investments that gave a return of 1.8 percent to make up for a 0.7 percent loss in equity holdings. Any remaining yield was nonetheless nearly completely eclipsed by the strengthening of the kroner relative to a number of other currencies in which the fund invests. At the end of the last quarter, the fund had risen in value by NOK 9 billion to NOK 3,111 billion (USD 566 billion). Things have been even worse since 1 July (the end of the second quarter), with the fund’s value falling under NOK 3,000 billion (USD 546 billion) in August and its value at the time of writing at around NOK 2,985 (USD 544 billion).
Yngve Slyngstad, the chief executive of Norges Bank Investment Management (which oversees the fund), remained upbeat decent recent worldwide economic worries, telling newspaper Aftenposten that “we believe that the unrest we have seen in the finance markets recently is as much an opportunity as a problem.” The downgrading of the USA’s credit rating has had no particular affect on the American bonds that the fund is invested in, but the current economic turbulence will begin to affect the fund even more considerably if economic growth in major economies starts to slow down in the future, Slyngstad warned.
At the end of the last quarter, 60.5 percent of the fund was invested in shares, with 39.4 percent in fixed-income securities and just 0.1 in property investments. Of the money in fixed-income securities, 43 percent is in government bonds. A quarter of these bons investments are in European states, with NOK 80 billion (USD 15 billion) of the fund’s money in Italian and Spanish bonds. “Therefore, it is in our interest that they succeed in getting order within the Eurozone,” Slyngstad concluded.
The fund has an annual goal of 4 percent yield in order to match the 4 percent that is allowed to supplement the government’s annual budget. An NRK economic commentator, Steinar Mediaas, has warned that politicians should expect less from the fund in coming years, and be less eager to take money out of it to supplement the state budget. “Politicians want to take out four percent per year, but the yield is much lower than politicians have believed,” Mediaas suggested. “If one looks at the whole lifetime of the fund, the yield is 2.94 percent.”
Meanwhile, things have been looking up slightly for the Oslo Stock Exchange after days of serious falls in shares over the previous weeks. The main index was up 3.4 percent to 356.00 at the close of trading on Thursday, and was up around 2 percent near the end of the day on Friday.
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