Category: Financial / Investment
OSLO, March 18 – Norway’s sovereign wealth fund (SWF) will stick to its target of a 4 percent real return on assets despite low bond yields, its head said, after soaring equity investments helped it hit returns of close to 10 percent last year.
The $500-billion-plus SWF, fed by Norwegian tax revenues from oil and gas operations and the world’s second largest behind its peer in the United Arab Emirates, said it earned 264 billion Norwegian crowns ($46.7 billion) on investments in 2010.
It expected continued above-average return on equities as markets remain volatile.
“In total it’s sensible to stick to a target of 4 percent annual real return over time,” said Yngve Slyngstad, chief executive officer of Norges Bank Investment Management (NBIM), which manages the fund.
Since the fund was started in 1998 the average real return has been 3.1 percent.
“Return on the fixed income portfolio is lagging the target… But high volatility and the uncertainties we’ve seen should result in a higher return on equities,” Slyngstad told a news conference.
Norway would continue buying foreign currency on behalf of the fund but would not intervene in currency markets, the country’s central bank chief Oeystein Olsen said on Friday, as G7 central banks moved to curb the Japanese yen.
The fund said it had profited from improving company profits, low interest rates which had boosted equity markets, and stimulus measures from the European Central Bank, the Bank of Japan and the US Federal Reserve.
“The fund also benefited from its long-term approach, as large equity purchases during the financial crisis in 2008 and in the first half of 2009 yielded solid returns,” Slyngstad said. “The value of our fixed-income investments also continued to recover after steep price drops two years earlier.”
The market value of the fund rose by 437 billion crowns to 3.077 trillion at the end of the year. Capital inflows from the government amounted to 182 billion crowns, while the return on investments was 9.6 percent.
The fund was worth 3.054 trillion crowns at 1055 GMT, according to NBIM’s website.
About 38.5 percent of the new capital inflows went to bond purchases with the rest going on equities. The fund said raw materials was its most profitable stock sector in 2010.
The NBIM-managed Norwegian Government Pension Fund Global invests Norway’s oil wealth in foreign stocks and bonds to save for future generations and avoid overheating the Norwegian economy.
Norges Bank has said Norway should consider scrapping a regional allocation weighting system for the fund, which currently favours investments in Europe. If scrapped, the fund could invest more in the Americas and in Asia.
Published: June 10, 2023