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NOK425bn oil fund makes first corporate bond moves

NORWAY – Norges Bank Investment Management is to broaden the investment allocation of the NOK425bn (e54bn) government oil fund, Petroleumsfondet, by adding non-government bonds to its investment portfolio for the first time.

The Norwegian ministry of finance is still considering the timetable within which the investment manager can start investing in corporate bonds.
Says Sigbjørn Atle Berg, head of business administration at the manager: “ It’s just a question of exactly when and what’s going to happen. Quite likely we’ll use Salomon Smith Barney’s world BIG broad_investment-grade index for the brief. We’ll include parts of the index in the brief on different dates during next year.”

The manager will be “most likely” to look for an external manager at a later date, rather than invest in the asset class in-house, says Berg, but the weighting of corporate versus government bonds is yet to be decided.

The expansion to corporate bonds is not a safeguard against recent turbulence in the markets, says Berg.
“ It’s more of a question of having more instruments to invest in, we need to cover the markets because the fund will be growing so fast in the coming years.”

The first quarter of this year, however, saw negative returns for the fund’s total investment portfolio. The return of the whole fund was –4.2% measured in local currency and, due to the current strength of the crown, -2.8 in terms of the currency basket corresponding to the fund’s composition, says Norges Bank.

The figures are 0.16 percentage points below the benchmark portfolio set by the ministry of finance.
The return on its equity portfolio was –10.2% in the first quarter, and the fixed income portfolio returned 2.1% in international currency at the same time.

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