Weak markets cause Norwegian Pension Fund Global to miss benchmark
NORWAY - The Norwegian Pension Fund Global (NPFG) returned 0.3% in the three months to June on the back of declining stock markets, but struggled to increase total assets significantly after government contributions were offset by a strengthening Norwegian kroner.
For the second quarter, the scheme - managed by Norges Bank Investment Management (NBIM) - saw returns from investment of NOK4bn (€510m) due to returns of 1.8% on its fixed income portfolio.
The scheme explained the stronger bond performance by pointing to the increase in safe haven euro-zone debt prices, which offset the decline in peripheral government debt, as well as UK, US and Japanese bonds returning up to 3.2%.
Equities, in which 60.5% of total assets are invested, fared less well, falling by 0.7%. As a result, NPFG performed below its benchmark target of 0.4%.
Yngve Slyngstad, chief executive at NBIM, said: "Signs of weaker economic growth in the US and Europe and fears of contagion from the European sovereign debt crisis reduced investors' risk willingness in the quarter.
"At the same time, demand rose for government bonds from countries such as Germany, the UK, France and the US."
Government contributions of NOK53bn were largely offset by the four global currencies - in which the scheme holds more than 80% of its assets - depreciated by as much as 3% against the kroner.
The US dollar and British pound depreciated most, by 3% and 2.9% respectively, while the euro lost 0.9% and the Japanese yen slipped by 0.5% compared against the kroner - resulting in NOK48bn being wiped off the value of the fund.
While fluctuations in the exchange rate have in the past cost NPFG more, combined with low investment returns, the fund posted its lowest increase in total assets in more than a year - rising by NOK9bn.
Compared with the first quarter, when oil and gas sector equities grew by 11%, the sector posted the worst performance of any equity holdings after crude oil prices fell by as much as 10.6%.
As a result, oil giants Exxon Mobil, Royal Dutch Shell and Total declined by 3.3-7.2%, with all three companies being among NPFG's 10 largest holdings.
Holdings in financial institutions were also badly affected by the sovereign debt crisis, losing 3.2% in value.
Geographically, European stocks performed best, returning 0.7%, while the Americas, Africa and the Middle East lost 2.3% of value. Holdings in Asia Pacific also saw negative returns.
For the first time, the fund also announced details of its real estate returns.
The scheme said in November that it would buy a 25% stake in Crown Estate holdings in the UK capital. However, due to transaction fees and stamp duty imposed on the London deal, the property in Regent Street lost 4.7%.