Norway's oil fund ordered to cut European investments to 40%

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  • Norway's oil fund ordered to cut European investments to 40%

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NORWAY - Norway's Pension Fund Global (NPFG) will shift its equity strategy towards global market weighting, resulting in a lower overall exposure to the European stock market, the country's ministry of finance has announced.

The report to the Storting - the country's parliament - also said changes would be considered to the NOK3.3trn (€424bn) oil fund's overall equity exposure, with proposals being considered to allow for the currently fixed 60% of assets to fluctuate by as much as 3%, in line with market movements. 

The ministry of finance said the new market weighting would result in a reduction in the amount invested in Europe to around 40% of assets, a noticeable shift in strategy.

According to its most recent annual report, 49.8% of equity and 57.2% of fixed income holdings are from countries within the region.

Minister of finance Sigbjørn Johnsen said exposure to Europe would be reduced gradually and insisted that the fund would remain a "considerable investor" in the region.

However, Norges Bank Investment Management will not be asked to shift completely to a market weighting, according to the minister.

"A full transition to global market weights would have resulted in a sharp reduction in the investments in Europe and at the same time a high percentage of investments in the US," Johnsen said.

"It is sensible to have a more even distribution between these two markets, and we will therefore not go completely to market weights here."

The ministry also said it was considering how best to rebalance NPFG's equity exposure, noting that changing equity prices would often mean that it would not always have the mandated 60% of all assets invested in the stock market.

"Norges Bank has advised us on how to formulate the rebalancing rules," Johnsen said, noting that the idea of a 3% fluctuation was under consideration and a decision would be made in the coming months.

The ministry also reiterated plans to link the fund's sovereign debt exposure to a country's GDP in an effort to reduce volatility in returns.

Last year saw NPFG's equity portfolio fall by nearly 9% in value, with an overall return of -2.5% achieved on back of strong returns from its fixed income portfolio.

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