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Britain’s vote to leave the EU has hit Norway’s $890bn oil fund, as managers announced on Wednesday that they had slashed the valuations of its UK property portfolio by 5 per cent.

The world’s largest sovereign wealth fund said the move was due to increased volatility and uncertainty following the UK referendum to quit the EU.

The fund said the downward revisions had reduced the returns on its total property portfolio, including the UK, by 1.4 per cent, while currency movements after the June 23 vote cut them by a further 1.6 per cent.

Almost a quarter of its NKr222bn property portfolio is invested in the UK with 16 per cent of the total located in London.

Overall, the oil fund, which holds the surplus wealth produced by Norwegian oil and gas income, eked out a small positive return in the second quarter of 1.3 per cent.

It said its external valuers could not adjust the valuations of UK property due to a shortage of data. But the fund decided itself to revise the values down by 5 per cent due to the presumed negative effect of Brexit on property prices.

“Brexit probably will mean something for UK market and UK and London property markets. We did the devaluation according to that. However, we think it’s really early days to speculate on what will be the ultimate impact,” said Trond Grande, deputy chief executive of the fund’s manager.

The fund has bought London property following the Brexit vote, paying £124m for the leasehold of 355-361 Oxford Street, a retail and office property. It secured a discount of 15 per cent, as the owner, Aberdeen Asset Management, was under pressure to meet investor redemptions, according to people briefed on the sale.

However, Mr Grande said that the fund saw few bargains. “I wouldn’t say that we particularly view the outcome of Brexit as an opportunity for us.”

The oil fund is not the first investor to downgrade UK property. A series of British funds focused on the area imposed “fair value adjustments” after the referendum to reflect likely drops in the value of commercial property and six funds holding more than £15bn in assets were forced to suspend trading as investors rushed for the exits.

UK commercial property in July saw its biggest slide in value since 2009, with capital values down 2.8 per cent, according to the IPD property index — prompting MSCI, which runs the index, to declare the sector “formally in recession” after two months of falls.

Most of the funds are still operating on adjustments of minus 3.5 to 7.5 per cent, and their performance has begun to reflect real price drops — Aberdeen’s UK Property fund has fallen 9.2 per cent over the past three months.

Across the oil fund’s broader portfolio, bonds performed best, returning 2.5 per cent, while equities returned 0.7 per cent and property minus 1.4 per cent.

Mr Grande said: “After a period of relatively stable markets at the beginning of the quarter, the British decision to leave the EU sparked a sharp decline in Europe. Markets recovered relatively quickly, but with major variations between sectors.”

The equity investments that returned the most in the quarter were Royal Dutch Shell, Novartis and ExxonMobil. The worst performers were Apple, Lloyds Banking Group and Daimler.

The fund continued to warn that this year’s strong performance of bonds cannot carry on forever.

Mr Grande said: “The fund’s fixed income investments received price gains due to falling interest rates. In the long term, however, lower interest rates have negative implications for future returns on the fixed income portfolio.”

The oil fund is also facing up to its first withdrawals in the 20 years since it was set up. The government took out NKr24bn in the second quarter.

The fund has insisted that it can cover such withdrawals out of its cash flow from receiving dividends and bond coupons. But experts have expressed surprise that Norway has started to draw down on the fund so early.

The government is allowed to take up to 4 per cent of the fund’s value each year to support the general budget, but as the fund has swelled in value recently politicians have limited themselves to about 3 per cent, which amounts to about 7 per cent of GDP.

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