BLBG:Norway Oil Fund Lost $15 Billion in 2011 as Stocks Declined
Norway’s sovereign wealth fund, Europe’s largest stock investor, lost 86 billion kroner ($15 billion) last year as equities slumped on concern the region’s debt crisis might tip the global economy into recession.
The $600 billion Government Pension Fund Global fell 2.5 percent, as measured by a basket of currencies, its third worst annual loss since 1998, the Oslo-based investor said today. Its equity holding fell by 8.8 percent and its bonds rose 7 percent.
“The result reflects substantial declines in share prices in 2011 and increased uncertainty about government debt in the euro area,” said Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, which manages the fund, in a statement. “We are prepared for significant fluctuations in the fund’s value from year to year.
Investors dumped stocks last year after European leaders failed to contain the region’s crisis, shattering confidence in the euro. Turmoil stemming from Greece spread through the region, and ended up costing France -- the euro area’s second- biggest economy -- its top credit rating.
Government Bonds
The fund said today that its government bond holdings returned 10.5 percent in 2011, while its financial stocks slumped 19 percent. The fund’s average holding of all European listed company rose to 2.3 percent in 2011.
The MSCI World Index (MXWO) of stocks posted its worst annual drop since 2008, when Lehman Brothers Holding Inc. collapsed. The index fell 7.6 percent after plunging 17 percent in the third quarter alone. The euro recorded its first back-to-back annual drop against the dollar since 2001, while yields on bonds from Italy and Spain surged. Government securities from the U.S., Germany and the U.K. rallied.
The European Central Bank reversed interest rate increases, cutting its benchmark rate to a low of 1 percent in December as the debt crisis escalated. An unprecedented 1.02 trillion euros ($1.33 trillion) of three-year loans to banks in December and February helped ease tensions on financial markets, fueling bond and equity-market rallies.
Norway’s oil fund posted its second-worst quarterly result in the third quarter after losing 21 percent on its European stocks. The investor said today it bought stocks worth 185 billion kroner from June to November to take advantage of falling asset prices.
Great Importance
“We bought more than a 150 billion kroner in European equities from the summer through the end of the year,” Slyngstad said in the statement. “Because more than half of the fund is invested in Europe, it is of great importance to us that authorities are successful in solving the considerable structural and monetary challenges faced by the euro countries.”
At the end of 2011, the Norwegian fund held 58.7 percent of its assets in stocks, 41 percent in bonds and 0.3 percent in real estate. It’s mandated to hold 60 percent in stocks, 35 percent in bonds and 5 percent in real estate, which it first bought last year. The fund is managed by the central bank and gets guidelines from the Norwegian government.
The fund’s largest stock holding last year was in Royal Dutch Shell Plc (RDSA), while its biggest bond holding was in U.S. Treasuries, followed by U.K. and French government bonds.
Its holdings in Italian government debt fell to 32.9 billion kroner from 43.8 billion kroner at the end of the third quarter while its holding of Spanish debt fell to 18 billion kroner from 19.5 billion kroner.
Erupting Crisis
The fund lost a record 633 billion kroner in 2008, when the financial crisis erupted following the collapse of Lehman. It posted a 26 percent return in 2009 and a 9.6 percent gain the following year.
Norway’s government deposited 271 billion kroner of oil revenue into the fund last year. The return missed by 0.1 percentage point the benchmark set by the Finance Ministry.
The fund got its first capital infusion in 1996 and has been taking on more risk as it expands globally, raising its stock portfolio from 40 percent in 2007. It first added stocks in 1998, emerging markets in 2000 and this year real estate to boost returns and safeguard wealth.
Norway, a nation of 4.9 million people, generates money for the fund from taxes on oil and gas, ownership of petroleum fields and dividends from its 67 percent stake in Statoil ASA (STL), the country’s largest energy company. The Nordic nation is the world’s second-largest gas exporter and the seventh-biggest oil exporter. The oil fund invests outside Norway to avoid stoking domestic inflation.
To contact the reporter on this story: Josiane Kremer in Oslo at Jkremer4@bloomberg.net
To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net
