NORWAY - The Norwegian Government Pension Fund - Global has reported the lowest quarterly return in its history and generated a negative yield of 7.7% in the third quarter.

Figures published by Norges Bank Investment Management (NBIM), which manages the pension fund, showed at the end of September 2008 the value of the fund had increased from NOK 1.992trn to NOK 2.120trn (€234.7bn).

This increase in the value of the fund was only as a result of the transfer of NOK 128bn from the Norwegian state - earned from oil and gas revenues - to the fund, albeit this is the largest amount ever transferred in a single quarter thanks to increased oil prices.

In addition, NBIM said a weak Norwegian krone against the currencies the fund is invested in increased the value of the government pension fund by NOK 173bn, which exactly offset the investment losses of NOK 173bn resulting from the 7.7% quarterly loss.

However, while the quarterly figures showed the value of the fund increased overall, the latest monthly figures published by Norges Bank revealed by the end of October the market vale of the scheme had dropped around NOK 30bn to NOK 2.090trn. (See earlier IPE article: Norway global fund loses €3.2bn in month)  

The quarterly report revealed the overall negative return was driven primarily by losses on equity investments - which are gradually being increased from 40% to 60% and had reached 53% at the end of September - with lost 13.12%, although fixed income also performed poorly with a 1.19% negative yield.

Yngve Slyngstad, chief executive of NBIM, said: "The third quarter of 2008 was an unusually demanding quarter for the management of the Government Pension Fund - Global. Uncertainty in financial markets increased dramatically, and this affected the return on the fund."

Figures showed the quarterly return was 1.84 percentage points lower than the return on the benchmark portfolio set by the Norwegian Ministry of Finance - the weakest in its history - and just under 50% of the third quarter losses resulting from equity management and exposure to the US bank sector while a quarter of the losses attributed to internal equity management.

The poor performance of the fixed income management, meanwhile, was blamed on exposure to US mortgage bonds, as well as bonds issued by financial institutions in Europe and inflation-linked bonds.

"These investments were primarily made before the start of the financial crisis in 2007 and are not very liquid today. The losses are a continuation of the developments we have experienced since the summer of 2007."

Despite posting the worst quarterly return since the fund was established, the annualised gross annual return since 1998 is 4.1% while the annual net real return - which deducts inflation and management costs - is 1.9%.

Slyngstad said: "NBIM is in a unique position in today's market, and we are making record-high purchases in the equity market in 2008. It is possible for us to have a long time horizon for our investments."

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