Losses cut deeply into ‘Oil Fund’

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Norway’s so-called “Oil Fund,” fueled for years by windfall oil profits and booming stock markets, has reported huge losses that cut its total value by a whopping NOK 633 billion (around USD 90 billion).

The losses have set off a storm of criticism against the fund’s managers. No one complained when the fund’s managers raked in huge gains before the global finance crisis set in.

Norwegian newspapers had been peppered with stories all week that warned of looming heavy losses for the fund that sets aside profits from the country’s offshore oil revenues for future generations. The fund is meant to help finance pensions, and it ranks as one of the largest pension funds in the world.

It’s been a repeated target of attention in the international media as well as in Norway, because of its sheer size and government policies that aim to guide its investments from a social welfare point of view. The fund has been known to sell off stock in companies that don’t meet political standards, even though those standards also have been known to waver at times.

Now, however, the fund has been battered by the world’s huge stock market losses. Norway’s central bank, Norges Bank, reported Wednesday that the fund’s value fell by NOK 663 billion from the end of 2007 to the end of 2008. Nearly half of the losses were logged in the fourth quarter alone, when stock markets plunged.

Newspaper Aftenposten reported that NOK 560 billion of the total loss could be blamed on the finance crisis, while another NOK 70 billion in losses could be blamed on managers’ failed attempts to earn extra money. Official numbers indicate that NOK 596 billion in losses are tied to losses in the fund’s share portfolio, with an overall negative return of 23.3 percent for the year.

Central bank chief Svein Gjedrem noted that the finance crisis revealed “weaknesses” in some areas of fund management. Fund boss Yngve Slyngstad has been given a new investment mandate by the central bank board involving risk management, especially regarding interest rates.

While at least one politician called the fund’s losses “a scandal,” several professors of economics and investment advisers cautioned against any major changes in strategy based on market swings. Finance Minister Kristin Halvorsen, from the Socialist Left party (SV), maintained that a “steady course” was most important. She was confident the fund will eventually enjoy record profits once again.