Norways state pension fund, one of the worlds biggest investors, lost 71.5 billion euros last year on its portfolio, wiping out nearly a decade of returns, the central bank said on Wednesday. The central bank said the funds holdings tumbled 633 billion kroner (71.5 billion euros, 90.5 billion dollars) in value last year as the global financial crisis took a heavy toll.
The negative return of 23.3 percent is the worst result since the fund was created in the early 1990s and wiped out almost all the gains it made in the past decade. Norways "oil fund," invested in international stock and bond markets, was hit badly by the financial crisis that emerged fully in the fourth quarter, the central bank said.
"The crisis on the financial markets heavily impacted the fund," central bank governor Svein Gjedrem told reporters. "There was no place to hide," he added. The fund contains nearly all state revenues from the oil industry in Norway, one of the worlds largest oil and gas exporters, and was created to help finance its generous welfare state system once the wells run dry.
Despite the loss on the investment portfolio, the funds overall value rose 256 billion kroner to 2.275 trillion kroner by the end of 2008. The increase reflected the inflow of a record 384 billion kroner of oil and gas revenue throughout the year, and a weakening of the krone. Oil and gas earnings are predominantly in dollars and the fund only invests in stock markets abroad so a weakening of the Norwegian currency automatically increases its value.
The fund was hit hard by the pronounced falls on world stock markets at the end of the year, a time when the fund was in the process of raising from 40 to 60 percent the proportion of its assets invested in shares. Shares currently account for about 50 percent of total investments. The oil fund is one of the worlds biggest investors, with holdings in about 7,900 companies.
At the end of the year, it held the equivalent of 0.77 percent of the worlds total stock market capitalisation and 1.33 percent in Europe, making it the biggest single investor on the continent. The government said it lamented the funds "very poor" performance but insisted it had no plans to change its strategy of investing the states oil revenues on the financial markets. "We are investing money that belongs to us, not money that we have borrowed," Finance Minister Kristin Halvorsen said in a statement.
"We dont have to sell when the stock prices are low ... The strategy is clear and long-term, and Im convinced that it will benefit us in the long run," she said. As a result of the investment losses, the central bank said it would significantly reduce fund managers remuneration and halt most of its bonus programme.
Yngve Slyngstad, the head of the central banks investment division, will see his annual salary cut from 5.5 to 3.5 million kroner and he will receive no bonus. It also announced measures to reduce its risk exposure, slashing from 39 to 12 its external investment managers.
"Weve learned the lesson of mediocre results and weve implemented major changes in our investment strategy," Slyngstad said. Yet 2009 looks set to be a challenging year. According to calculations made by Norways newspaper of reference Aftenposten, the funds investment portfolio has shrunk by around 205 billion kroner in the first two months of the year.