Norway SWF Enjoys Gains, Spurred by European Bond Exodus

The Government Pension Fund Global returned 4.7% in the third quarter of 2012.

(November 5, 2012) -- Norway's sovereign-wealth fund, the world's largest, has become even larger in the third quarter.

The fund's growth was spurred largely by a global equity markets rally as it also lowered its holdings of European bonds. "The result was largely driven by a rally in global stock markets," said Yngve Slyngstad, chief executive officer of Norges Bank Investment Management (NBIM), which manages the fund. "Stocks gained the most in Europe, where the fund has about half of its shareholdings."

According to a statement by the fund, equity investments--including allocations to German chemical producer BASF SE and US technology companies Apple Inc. and Google Inc.--returned 6.5% and fixed-income investments returned 2.2%. Investments in real estate returned 2.7%.

NBIM said on Friday that the government pension fund rose to a value of NOK3.723 trillion Norwegian ($653 billion), after realizing a return of NOK167 billion, or 4.7%, in the three months through September.

Additionally, the fund reduced its holdings of French and Spanish government debt in the quarter while increasing its investments in US and Japanese government bonds. It increased its holdings of government bonds issued in the currencies of emerging economies such as South Korea, Mexico, and Russia. "The changes reflect a strategy to gradually reduce the fund's share of European bonds while increasing bond investments in other regions," NBIM's statement said.

The fund held 60.3% in equities, 39.4% in fixed-income, and 0.3% in real estate at the end of the quarter. Geographically, as outlined by the fund's quarterly report, the fund's exposure to Europe was 47.8%, while investments in the Americas, Africa, and Middle East totalled 37.8% as of September 30. Asia and Oceania comprised 14.4% of the total portfolio. The target allocation is to reduce exposure to Europe to 41%, and exposure to the Americas, Africa, and Middle East to 40%. Roughly 19% of the portfolio would be invested in Asia and Oceania.

Talking to aiCIO in 2010, Slyngstad said the usual queries and conundrums over managing assets did not apply to Norway, due to the enormity of the fund's portfolio. When asked for his views on the debate that was raging about how best to manage equities, he said: "We're not for or against active or passive management for smaller firms or investors. What we are saying is that, for an investor of our size, we need to be a leader and take an active role. We don't really think that there is an alternative to active management for our fund. In one sense, we are quite simply too large to contemplate indexing."

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