The Strategist

The world's largest pension fund lost $ 10 billion

04/28/2016 - 16:16

Pension Fund of Norway showed a negative return for the third time this year, having lost $ 10 billion in the first quarter. Taking into account the krone’s fall and the authorities’ intervention, fund has lost almost $ 50 billion.
The world's largest sovereign wealth fund - the Norwegian Government Pension Fund - returned to the damages in the first quarter of 2016 – this follows from the reporting published on Thursday. The fund’s performance in January-March amounted to minus 0.6%. The results for 2015 were the worst in the last five years: the fund showed negative profitability in the second and third quarters. Only thanks to a good end of the year was it able to show 2.7%-results in yield.

The fall of profitability in the first quarter in real terms corresponds to the fund’s loss of NOK 85 billion, or about $ 10.4 billion. The total value of its assets as of March 31 amounted to 7.079 trillion kroner ($ 853 billion). As of April 28, it dropped to 7.043 trillion kroner ($ 864 billion taking into account changes in the krone-dollar pair).

As the fund’s management notes, the markets showed volatility in the first two months of 2016 due to "fears of slowing down in China, uncertainty surrounding the yuan, falling energy prices and the threat of deflation". In March, situation had somewhat corrected: China's economy gave positive signs, and the US Federal Reserve took on a more cautious monetary policy.

Approximately 60% of the fund assets account for securities, 37% - fixed-income investments, about 3% - real estate.

The fund’s yield securities decreased to minus 2.9% in the first quarter. At the end of 2015, this index was in the black, at 3.8%. The Norwegians derived worst results in Asia (21% of the fund’s total investments in securities). Fund performance in the whole of Asia was minus 4.8%; minus 10% - in China.

The most lucrative for the Norwegian fund were investments with fixed income - 3.3% against 0.2% yield for the whole of last year. Basically, here we are talking about government bonds in the Norwegian currency (56.4% of the portfolio, 4.4% yield) and in foreign currency (14.2% of the portfolio, 3% yield).

The yield from investments in real estate was negative, too - minus 1.3% against + 10% in 2015. In the first quarter, the fund refused to buy new property, and even sold "two logistics companies in Spain."

Norway, as the largest oil producer in Western Europe, is suffering from falling oil prices. In early 2016, the government for the first time since the fund’s inception withdrew from it 25 billion kroner ($ 3.1 billion) for its own needs. The national currency’s drop, followed by the collapse of oil prices, also reduced the fund's assets value by 286 billion kroner from the beginning of the year. In total, the size of the fund's assets decreased by 400 billion kroner (nearly $ 50 billion) during the first quarter.