Norway’s Government Pension Fund Global (GPFG) today reported a 10% return for the first half of this year, but the interim report also revealed the now NOK14.9trn (€1.3bn) sovereign wealth fund underperformed its benchmark in the period.
Announcing January-to-June results at Arendalsuka, the annual debating event held in the southern Norwegian town of Arendal, Norges Bank Investment Management (NBIM) said the 10% return equated to NOK1.5bn, boosting the value of the fund it manages to NOK15.3trn on 30 June 2023.
Nicolai Tangen, NBIM’s chief executive officer, said: “The stock market has been very strong in the first half of the year, following a weak year in 2022.
“Especially technology stocks have seen significant growth, largely driven by the increased demand for new solutions in artificial intelligence,” he said.
But the fund’s return was 0.23 percentage points less than the return on the benchmark index, NBIM said, equating to minus NOK33bn.
Asked at the press conference why the GPFG had underperformed in the period, Tangen said: “The reason for that is real estate, because when property values go down and the index goes up, then we get negative numbers.
“It had a positive effect last year when the market went down and property values went up, but when the market goes up then we get negative figures,” said Tangen, a former hedge-fund tycoon who favours active strategies and tactics to increase returns at the mainly index-tracking GPFG.
However, the CEO added that he believed the fund was very well positioned with its underlying fixed assets.
For the first two full years under Tangen’s leadership, 2021 and 2022, the fund produced positive outperformance of 75 and 87 basis points respectively, although there have been half-year periods during his tenure when the fund missed its benchmark.
Tangen pointed out back in February that the 2022 outperformance had been the first time the SWF had beaten the index in a falling market.
The fund’s equity investments - which made up 71.3% of the portfolio at the end of June - produced a 13.7% return in the six months. Fixed income generated 2.2%, but unlisted real estate and unlisted renewable energy infrastructure turned in losses of -4.6% and -6.5% respectively, according to the report.
NBIM said the main driver behind the loss on unlisted real estate had been the office sector, with US investments in particular having fallen sharply in value, due mainly to increased vacancy, while the SWF’s listed property portfolio had also been hit by negative US office performance.
The loss on unlisted renewable energy infrastructure was primarily down to lower expected power prices, the central bank arm said.
Breaking the GPFG’s relative return down into its equity, fixed-income and real asset management, NBIM reported that unlisted real estate investments had contributed a negative -0.26 of a percentage point in the first half, and renewable energy infrastructure had also made a slightly negative contribution.
Equities contributed a positive 0.13 of a point, meanwhile, and fixed-income management chipped in with a positive 0.06 percentage point, the Oslo-headquartered investment manager said.
Currency movements added NOK980bn to the fund, with the Norwegian krone having depreciated against several of the main currencies during the quarter, NBIM said.
The GPFG also received inflows of NOK389bn in the period, according to the report.
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