Norway’s sovereign wealth fund, the world’s third largest, lost a record Kroner 633 billion ($90.5 billion) last year, wiping out gains since the fund started investing the country’s oil revenue 12 years ago.
The Government Pension Fund - Global’s investments fell 23.3 per cent in 2008 as measured by a basket of foreign currencies, Norway’s central bank said today. The fund, worth Kroner 2.28 trillion, lost 40.7 per cent on stocks and 0.52 per cent on bonds.
“The financial crisis has dealt a heavy blow to our investments in global equity and fixed income markets,” Norges Bank Governor Svein Gjedrem said in the report. “After a number of good years, last year’s performance has put us right back where we started.”
Norway put a record 384 billion kroner in the fund last year, as crude prices soared to an all-time high in July. The fifth-largest oil exporter and the third-largest gas exporter set up the fund to manage its petroleum riches after the country discovered oil in the North Sea in 1969.
Norway said today it has put a total of Kroner 2.14 trillion into the fund since 1996. Measured in international currencies, the fund has lost Kroner 131 billion over that time.
The country of 4.8 million people derives money for the fund from taxes on oil and gas, ownership of petroleum fields and dividends from its 67 per cent stake in StatoilHydro ASA, the country’s largest oil and gas company. The return generated by the fund, which invests abroad to avoid stoking domestic inflation, was 3.4 per cent lower than the benchmark set by the Finance Ministry. Norway’s central bank runs the fund, while the Finance Ministry sets guidelines.
Global stocks plunged last year as an economic recession spread from the US to Europe and Japan. The MSCI World Index fell 42 per cent, while Dow Jones Stoxx 600 Index of European companies slumped 46 per cent.
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Norway got less money for its oil in the last two quarters after crude prices plunged 69 per cent last year from a record $147.27 a barrel in July.
The fund spent $1 billion in 2008 to help six US and European banks, including the now defunct Lehman Brothers Holdings Inc. Those bets cost about $500 million. It also held on to US mortgage-backed securities, including about $14 billion of bonds issued by Fannie Mae and Freddie Mac, the mortgage finance companies bailed out by the US at the end of the year.
The fund also increased purchases of riskier assets as part of a government-backed strategy to boost returns. It’s moving to having 60 percent of its assets in equities, up from 40 per cent, 35 per cent in bonds, rather than 60 per cent. It has also said it will begin investing in real estate this year and is adding emerging markets such as Russia, India, China and Egypt.
The fund has loosened its policy on stakes in individual companies, allowing a holding as large as 10 per cent in single companies, up from 5 per cent. The fund’s largest stock holding by the end of 2008 was in Royal Dutch Shell Plc, at a value of Kroner 15.3 billion, followed by Nestle SA and BP Plc.
The fund, the largest equity investor in Europe, holds about 0.8 per cent of global equity markets, according to the report. The fund’s largest bond holdings were in German government bonds, at 95 billion kroner, followed by UK and Italian government bonds.
The Abu Dhabi Investment Authority is world’s the largest sovereign wealth fund followed by the Government of Singapore Investment Corp., according to data from Bloomberg. and the Sovereign Wealth Fund Institute in Roseville, California.