Short-Term Losses Dent Norway’s Long-Term Returns

When a sovereign wealth fund, pension fund, or endowment has a bad quarter, it always claims it’s not rattled by short-term losses and reminds everyone that it’s investing for the long term.

However, the global stock market crash brought on by the coronavirus pandemic during the first quarter was so severe that it has put a dent into the long-term returns of Norway’s Government Pension Fund Global (GPFG), the world’s second largest pension fund.

The fund lost 14.6% in the first quarter of 2020, or 1.171 trillion kroner ($112.4 billon). The fund’s portfolio was weighed down by its equity investments, which tumbled 21.1% during the quarter. The fund’s average holding in the world’s listed companies, measured as its share of the FTSE Global All Cap stock index, was 1.5% at the end of the year. The index was down 20.3% for the quarter.

Fixed-income was the top-performing asset class for the fund, returning 1.3% for the quarter. The return for the fund’s unlisted real estate investments was not available and will be released later in April.

“We have seen a substantial decline in the world’s equity markets in the first quarter, with considerable fluctuations from one day to the next,” Yngve Slyngstad, CEO of Norges Bank Investment Management, said in a statement. “The market situation is very challenging. However, the fund has a long-term horizon.”

Unfortunately for Slyngstad, the fund’s long-term horizon was also affected by the historically bad quarter as its annualized returns over the last 10 years fell to 5.7% at the end of March from 7.83% just three months earlier. And since its inception in 1998, the fund’s returns were 5.3% at the end of the first quarter, down from 6.09% at the end of December.

The net real returns over the last 10 years dropped to 4% at the end of March from 5.98% and the end of 2019, while the net real returns since inception fell to 3.5% in March from 4.17% at year-end 2019.

The performance was an abrupt reversal from last year when the fund returned 19.9%, which was the second highest return in percentage terms and the highest in terms of krone.

“The strong return in 2019 provides a reminder that the fund’s market value could also fluctuate substantially in the future,” the fund said in its annual report earlier this year. “In isolation, a global stock market downturn equivalent to that in 2008 would reduce the value of the fund by almost 3 trillion kroner.”

The krone depreciated against several of the main currencies during the quarter, which is why the fund’s market value only fell 90 billion kroner from the end of the previous quarter despite the large investment loss.

The fund recently named Nicolai Tangen, chief executive of London-based AKO Capital, as its new CEO to replace Slyngstad, who said in October that he is stepping down after 12 years heading the fund.