NORWAY - The Government Pension Fund - Global underperformed its benchmark by 0.35 percentage points in the first three months of 2009 with a quarterly return of -4.81%.

Figures from the fund's quarterly report, published by Norges Bank Investment Management (NBIM), showed the value of the fund dropped from NOK 2.275trn at the end of December 2008 to NOK 2.076trn (€235.6bn) at 31 March 2009.

The decline was attributed to a number of issues including weak investment returns, lower capital inflows of just NOK44bn - the lowest level since 2004 - a stronger krone and a decline in the value of existing fixed income positions.

Equity holdings of the fund, which increased from 49.6% to 52.6% over the quarter, produced a return of -8.84%, while the fixed income portfolio achieved a yield of -0.88%, resulting in an overall quarterly return of -4.81% or equivalent to a loss of NOK66m.

Overall, the value of the fund declined by NOK199bn, of which NOK177bn was the result of a stronger krone against the currencies in which the global pension fund is invested.

The increase in equity holdings is in line with the 2007 decision to raise the strategic equity allocation from 40% to 60%, which means the fund's average holding is 0.86% of global equity markets and 1.58% of Europe.

However, while the overall return from equities was poor, the report noted both internal and external equity management produced a positive performance, as the value of the externally-managed portfolios rose NOK43bn over the quarter and internal management producing an excess return of 0.30 percentage points compared to the benchmark set by the Ministry of Finance.

In contrast, the report noted, external fixed income management decreased by NOK7bn, while the internal fixed income management produced a return of -0.92 percentage points, resulting in the overall fund underperforming the government benchmark by 0.35 percentage points.

But Yngve Slyngstad, chief executive officer of NBIM, said: "In the parliamentary hearing in late April, we stated that the fund's performance at the time was flat in terms of both absolute and relative returns. The market recovery seen in March has continued into the second quarter."

The quarterly report also included an update on the pension fund's work on corporate governance, and highlighted a recent sector compliance report on children's rights. It confirmed NBIM intends to "shine the spotlight" in 2009 on the issue of independent chairmen of boards, especially in countries such as the US, Japan and France. 

It argued that an independent chairman is a "fundamental principle of good corporate governance" and warned "in our voting, we will not support the election of a chairman who is also CEO".

The report acknowledged: "There are almost 1,500 companies in the fund - most of them in the US - where we may come to exercise our voting rights in this way. We also plan to step up our dialogue with companies on this issue."

It addedwhile it has previously supported shareholder proposals calling for the separation of the roles in the past, going forward it "will now consider filing them ourselves", and confirmed it will "take various steps to influence this process" including contacting regulators, academic institutions and other investors. 

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