Norway’s NOK5.5trn (€556bn) Government Pension Fund Global has seen investment growth of 3.3% over the last quarter, with emerging market equity outperforming developed markets.

While second-quarter figures for the fund noted that returns had been “particularly strong” in countries including Russia, Turkey and Brazil, the returns must be contrasted with prior equity losses in the markets over the last year.

However, emerging market equity nevertheless returned 7.4%, 3 percentage points above developed market equity.

Norges Bank Investment Management (NBIM) also noted the financial sector was its worst performing industry, with its equity holdings only returning 2.1% – compared with 11.8% from oil and gas companies.

The report said increasing numbers of lawsuits against the financials sector, the rising cost of settlements and regulatory pressure negatively affected the sector’s return.

Underlining the performance problems, the fund said BNP Paribas, UBS and Credit Suisse Group had been the worst performing stocks over the last quarter.

Signalling further problems for the financial sector, NBIM also said it would support changes to the board structure at a number of those regarded as systemically important by the world’s regulators.

“One of the core principles of good corporate governance is the separation of board of directors from the day-to-day management of the company,” it said.

“One of the clearest ways of achieving this is to separate the roles of chairman and CEO. In the second quarter, this principle formed the basis for our voting at systemically important financial institutions, where we see particular benefits in keeping the roles of chairman and CEO separate.”

The Financial Stability Board in 2011 listed 29 banks as systemically important.

Among those, US bank Wells Fargo and JP Morgan Chase and others currently have joint chief executives and chairmen, a matter of shareholder pressure in recent years.

The fund’s fixed income portfolio returned 2% over the course of the quarter, with inflation-linked bonds offering the strongest return at 3.3%.

It also shifted further into emerging markets, increasing holdings in fixed income and equity from over the previous quarter by 0.1 percentage points and 0.3 percentage points, respectively.

Real estate outperformed fixed income, offering a 3% quarterly return, with the portfolio’s growth over the last year apparent from rental revenue.

Rental income almost doubled over the past year, to NOK1.5bn for the first six months, with returns from its property portfolio to date at 5.1%.

However, its property portfolio, when measured in local currency, returned 7% over the first six months of the year.

Despite property only so far accounting for 1.2% of the fund’s value, NBIM highlighted its plan to aggressively invest in the area.

“With real estate eventually accounting for as much as 5%  of the value of the fund, our goal is to build a global but concentrated real estate portfolio,” it said.

“We expect to invest 1% of the fund each of the next three years in the private real estate markets.”

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