Norway’s $455bn oil fund, the biggest investor in European stock markets, registered the best three-month performance in its 13-year history during the third quarter, almost erasing the heavy losses suffered during last year’s financial turmoil.
The 13.5 per cent return on investment, on top of similar gains in the second quarter, offered a measure of vindication for the fund and its political masters after fierce criticism of its performance last year.
“We have come through the biggest crisis for many decades without any losses,” said Yngve Slyngstad, chief executive of Norges Bank Investment Management, which runs the fund.
The fund, in which Norway invests its oil wealth for future generations, suffered a record 23 per cent decline in investments last year – more than 3 per cent worse than the benchmark portfolio against which it is measured.
This sparked criticism of a government decision in 2007 to increase the proportion of equities in the fund from 40 per cent to 60 per cent. But the equity buying spree has paid off this year as global markets have rebounded strongly.
The fund now owns 1 per cent of all global stocks and 1.8 per cent of those in Europe after completing its equity build-up in June.
Its value stood at a record high of NKr2,549bn ($455bn, €305bn, £270bn) at the end of September, with the recovery in oil prices helping to swell the coffers.
The fund, set up in 1996, is the world’s second largest sovereign wealth fund after that of the United Arab Emirates. Last year’s €77bn ($115bn, £70bn) loss by the fund led to a management shake-up that has seen more international experience added to the leadership team and a tightening of risk controls.
The return on the fund’s equity portfolio was 17.7 per cent in the third quarter, while fixed income investments gained 7.2 per cent. It outperformed the benchmark portfolio by 1.5 per cent.
Mr Slyngstad said the fund stopped adding equities to its portfolio after reaching the 60 per cent target in June. This was to keep the fund in line with government guidelines rather than a judgment call on the outlook for stocks, he said.
The fund’s rollercoaster performance has fuelled debate in Norway over how much of the country’s oil revenues should be set aside and how much pumped into the economy.
Jens Stoltenberg, prime minister, on Tuesday renewed his vow to limit spending of oil wealth in coming years after splurging cash over the past year to cushion Norway from the economic downturn.
Rules restrict the government to spending only 4 per cent of the value of the oil fund in “normal” years but Mr Stoltenberg’s centre-left administration has flouted the limit this year and again in the budget for 2010.
“The challenge from 2010 and ahead will be to again get spending down towards the 4 per cent trajectory,” Mr Stoltenberg told business leaders in Oslo.
“I promise that there won’t be tax cuts, but responsible fiscal policies.”
