NORWAY - Strong equity performance pushed returns for the Norwegian Government Pension Fund Global (NPFG) to 9.6% in 2010 - 1.1% above the fund's benchmark indices, according to its latest annual report.
Norges Bank Investment Management (NBIM), which manages the NOK3,077bn (€388bn) fund as the recipient of all Norway's oil profits, attributed its performance to a 13.3% return from an equities portfolio, comprising 61.5% of total assets.
The equity performance was largely a result of increased corporate profits, low interest rates and stimulus measures implemented by central banks in Europe, Japan and the US, with one of the few negative aspects the scheme's exposure to European financials.
NBIM CEO Yngve Slyngstad said in a statement the equity performance justified the fund's long-term approach, with large equity acquisitions made during the 2008 financial crisis and the first half of 2009 delivering solid returns.
However, the scheme's 8,496- company equity portfolio was stung by the 6.1% negative performance of its European bank holdings, which include Spanish banks Santander and BBVA - in contrast to the 14.8% return on its US and 14% return on its Asian financial equities.
Bonds, which make up 38.5% of the portfolio, returned 4.1% in 2010 - 1.5% above the benchmark. Within the bond portfolio, the highest return of 9.2% came from inflation-linked bonds, which account for close to one-tenth of all fixed income holdings. Corporate bonds, which make up 16.5% of the portfolio, followed with a 6.6% return, largely driven by higher prices for corporate debt issued by the financial sector.
Despite a management shake-up in the autumn, the NPFG's managers said today it would continue with an investment strategy focused on absolute return and long-term investment.
Fund board chairman Øystein Olsen said the fund planned to increase its reporting in an apparent bid to pre-empt protectionist moves to limit sovereign wealth funds' acquisition of large stakes in overseas assets.
"As a foreign investor, we are guests at another's table," he said. "When a representative of the Norwegian government becomes a major investor in another country, this can create uncertainty. It is important for the fund's investment opportunities that our capital continues to be welcome."
The fund invests exclusively outside its domestic market. Around 50% of its assets are in mainland Europe.
The report included little detail on the decision last year to invest up to 5% in real estate. However, its first investment - the acquisition of a 150-year lease on 25% of Crown Estate assets in central London - confirmed its commitment to cautious investment in prime assets in mature markets.