Norway's SWF Slashes European Allocation, Ups Emerging Markets

Norway’s sovereign wealth fund is set to reduce its exposure to Europe and boost it in emerging markets. 

(April 2, 2012) — Norway’s $610 billion sovereign wealth fund is set to slash exposure to the continent in favor of emerging markets. 

The fund will reduce its European holdings while upping its exposure to emerging markets and the Asia-Pacific. According to plans outlined by the Norwegian government, the fund will lower its allocation to bonds to 40% from from 60%, while equities will decline to 40% from 50%. Meanwhile, the share of emerging markets in the fund’s portfolio will increase to 10% from 6% and the share of the Americas and Africa will rise to 40% from 35%. 

“More than half of the Fund is currently invested in Europe,” Sigbjørn Johnsen, Norway’s Minister of Finance, said in a statement. “Since we have traditionally bought most of our goods and services from Europe, it has been natural to think that we are protecting the Fund’s international purchasing power against exchange rate fluctuations by investing considerably in European securities markets.” 

The statement continued: “New research presented in last year’s report showed that the exchange rate risk in the Government Pension Fund Global is relatively small and less than previously assumed. The conclusion was thus that the Fund’s relative share of European investments should be reduced over time, so that the Fund’s geographical diversification was further improved. The Norwegian parliament agreed with this view.”

According to the Minister of Finance, long-term, good management means that the assets in the Government Pension Fund can benefit both current and future generations. “In line with what we announced last year, we are now preparing to make changes to the strategy in several areas. This will strengthen the foundations for the investments,” the release said. 

The fund had a return on investment of 4.4% in the fourth quarter of 2011, and a negative 2.5% in all of 2011.

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