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Equity portfolio at Norwegian Pension Fund Global falls 17%

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NORWAY - Market turbulence has led to a nearly 17% drop in the value of the Norwegian Pension Fund Global's (NPFG) equity portfolio, with France's largest bank BNP Paribas cited as its worst-performing holding overall.

However, despite the ongoing debt crisis, the sovereign fund's fixed income portfolio returned nearly 4% between July and September - insufficient to offset other declines and leading to an overall negative quarterly return of 8.8%.

It nevertheless saw its market value decline only marginally to NOK3trn (€388bn), with a weakening kroner and government contributions offsetting most of the losses.

The third quarter saw Norges Bank Investment Management (NBIM), the fund's asset manager, reduce its exposure to Italian bonds by more than a quarter, while increasing investment in US Treasury notes and UK gilts - both returning more than 10% in local currency.

Breaking down fund investments by region and sector, Europe fared worst, with NPFG's European equities declining by 20.7%, while European financial stocks fared particularly badly, falling by 27.3% in the three months to September.

Of all its holdings, BNP Paribas was singled out as the worst-performing stock - with the French bank's value declining nearly 45% in the third quarter, down €24 to €30.05 a share at the end of September.

Its price has since recovered to €35.13 at close of trade last night.

Yngve Slyngstad, NBIM's chief executive, said the European sovereign debt crisis and economic slowdown had "weighed" on its equity portfolio in the quarter.

"Most of the fund's new capital was placed into equities to exploit the declines and take advantage of our long-term perspective," he said.

The healthcare sector performed best of all equity holdings, returning -7.2%, while investments in oil and gas companies slumped 18.4% on the back of concerns the economic slowdown would lead to less demand - with the fund's largest equity holding Royal Dutch Shell declining 15% over the quarter.

Fixed income investments offered stronger returns than at any point over the previous four quarters, reaching 3.6% - with UK and US bonds returning 11.5% and 10.8% when measured in local currency, respectively, while euro-denominated sovereign debt returned nearly 5%.

In its annual report, the NPFG noted: "The fund's government bond holdings returned 7% in the quarter, measured in international currency. Gains in German, French, US, UK and Japanese government bonds outweighed a drop in prices on bonds from several other European countries."

However, the fund reduced its exposure to Italian government bonds by 27.6%, while increasing US Treasury note and UK gilt holdings by 19.4% and 18.3%, respectively.

At the end of September, T-bonds were the largest single fixed income investment made by the fund, with the UK coming a distant second.

Bond holdings from Germany's development bank Kreditanstalt für Wiederaufbau (KfW) were increased, with the bank now ranking eighth overall and nudging total fixed income exposure to the German government into third place, ahead of France.

Detailing its exposure to peripheral euro-zone countries, the Q3 report said: "The holdings of bonds issued by the sovereign states Greece, Portugal, Ireland, Spain and Italy amounted to NOK71.5bn as of the end of the third quarter 2011."

Of this amount, bonds issued by the Greek government were NOK2.6bn, the NPFG added, with 61% of the NOK71.5bn invested in Italian debt.

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