NORWAY - The Norway Government Pension Fund - Global has been forced to review its short-term investment strategy following the worst results in the scheme’s history.
The fund reported a negative return of 23.3% for 2008 - a loss of NOK633bn (€71.7bn) - to reduce the fund to NOK2.275trn (€250bn) in 2008.
“The global financial crisis in 2008 presented major challenges to all parts of the portfolio of the Government Pension Fund - Global,” said Yngve Slyngstad, executive director of Norges Bank Investment Management (NBIM), which runs the scheme.
” We therefore made important changes in the implementation of the investment strategy and increased risk management during 2008,” he added.
Asset allocation changes have seen the scheme increase its global equity holdings by 40% during 2008 to reach practically 50% of its overall portfolio in a bid to combat negative excess returns of 6.6% from its heavy fixed income weightings.
Overall it underperformed its own benchmark by 3.4 percentage points in 2008, which cancelled out excess returns in previous years and leaves the fund with a cumulative negative return of 0.04 percentage points.
“We have reduced the absolute size of positions, especially with regard to fixed income, to the maximum possible,” said Slyngstad, which included reviewing the way it structures its externally-managed bond mandates to overcome limited liquidity from its bond investments in current markets.
Although the changes were designed as short-term solutions, Slyngstad said he expected them to play a significant part in the scheme’s longer-term fortunes.
“The fund has a much longer investment horizon than the vast majority of investors. The key question is therefore how good today’s investments will prove in the long term.”
Originally known as The Petroleum Fund, Government Pension Fund - Global was set up by the Norwegian government in 1990 as a vehicle for surplus income from oil reserves to be invested in international investment markets, and which would in turn be used to finance pension liabilities and other fiscal needs.
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