NORWAY - The giant Norwegian Government Pension Fund Global beat its benchmark index by 4.1 percentage points and returned a record 25.6% in 2009 as a result of gains in international equities and fixed income markets.

This compares well with the loss of 23.3% in 2008, driven mainly by the equity proportion of the fund as it this time returned 34.3% while fixed income investments generated a 12.5% return.

Yngve Slyngstad, CEO of Norges Bank Investment Management (NBIM), which manages the fund, said: "Developments in 2009 must, in the same way as 2008, to a large extent be viewed in light of the financial crisis. The fund's long-term management strategy ensured that we got through this period in a good way."

Compared with the benchmark portfolio set up by the Ministry of Finance, the fund's fixed income portfolio had an excess return of 7.4 percentage points in 2009, against -6.6 percentage points in 2008. The fund as a whole had an excess return of 4.1 percentage points, compared with -3.4 percentage points the previous year.

"The values have come back much sooner than we could have expected. The parts of the fixed income markets that stopped working during the financial crisis gradually returned to more normal conditions. This contributed a lot to the strong excess return," Slyngstad explained.

The fund's market value rose by NOK365bn (€45.33bn) to NOK2.64trn (€320bn) by the end of 2009, or by NOK1bn per day.  Capital inflows of NOK169bn were the lowest since 2004 and less than half of the record amount in 2008.

At the same time, a stronger Norwegian krone reduced the market value of the pension fund by NOK418bn. Yet fluctuations in the krone have no effect on the fund's international purchasing power.

The fund's average holding in international equity markets rose to 1% at the end of 2009 from 0.8% a year earlier, while its holdings in Europe increased to 1.3% from 1.8%. The fund had 62.4% of its investments in equities at the end of 2009, compared to 49.6% at the end of 2008.

"NBIM was strengthened in a number of areas in 2009, with a new governance model and organisation structure," said Slyngstad. "We used new methods in our ownership work and launched two new strategic focus areas: well-functioning markets and water management."

The fund has had an annualised gross return of 4.7% in international currency terms since 1998.  The annual net real return in the same period was 2.7%, up from 1% a year earlier.

At the same time, the Government Pension Fund Norway, which only invests in the domestic market, returned 33.5% but still underperformed its benchmark portfolio by 2.2 percentage points.

Over the past 10 years, the NOK117bn fund has beaten its benchmark returns by 0.5 percentage points.

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