Norway’s Smaller Pension Fund Also Impresses

< Back to all news

Norway’s Smaller Pension Fund Also Impresses


Category: Financial / Investment

Norway’s massive wealth funds are easy to mix up. But both are booming and giving 5 million Norwegian citizens a healthy dollop of security for decades to come.

The oil fund – also known as Norwegian Government Pension Fund Global — is the world’s largest sovereign wealth fund that invests money globally, and its $840 billion is available for unspecified needs of future generations. Last week, the fund said it returned 16% for 2013, the second best performance since its founding in 1996.

Norway’s smaller pension fund, meanwhile, is a NOK167.8 billion ($28 billion) pool of assets that is also tucked away for future generations. Its name – the Government Pension Fund Norway – is easily confused with its bigger brother. But while the government can spend up to 4% of the GPFG to boost its annual budgets, the GFPN doesn’t contribute anything to government spending.

The smaller fund has a more narrow mandate than the oil fund (which invests in real estate, equities in dozens of countries and a large swath of fixed income.) It invests mostly in Norwegian equities and bonds and some of its additional capital in Denmark, Sweden and Finland.

It turned out to be a winning strategy in 2013, leading to NOK22.6 billion in returns, or 15.7%. Unlike the oil fund – with fixed income returns essentially flat last year, the smaller pension fund had a 3.1% return on its bond portfolio. So, while Nordic equities weren’t as strong as those in the U.S. and some emerging markets, Nordic fixed income helped make up for almost all of the relative weakness.

The fund now owns 4.9% of the equities listed on the Oslo Stock Exchange and 2.6% of the Norwegian bond market. It said it was prepared for periods of lower returns amid increasing uncertainty in Norway, as the booming activity in the country’s oil sector was expected to flatten in the coming years.

The fund underlined its stabilizing effects on markets: During the financial crisis, it purchased shares while others were selling.

The fund added 13 companies to its portfolio in 2013 and held stocks in 151 companies at the end of the year. Its biggest stakes included NOK16.03 billion in Statoil, NOK11.32 billion in Telenor, NOK10.88 billion in DNB and NOK4.7 billion in Yara International.

Its biggest bond holdings included NOK11.29 billion in Norwegian government bonds, NOK3.19 billion in DNB Boligkreditt, NOK2.48 billion in Nordea Eiendomskreditt and NOK2.08 billion in Statoil.

The fund’s average annual returns were 7.8% in the 2004 to 2013 period.

Source: The Wall Street Journal

Published: May 3, 2014