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Norway’s volatile wealth fund hits new peak
By Andrew Ward in Stockholm
Published: October 19 2010 23:54 | Last updated: October 19 2010 23:54
Norway’s sovereign wealth fund has topped NKr3,000bn ($518bn) for the
first time, in a milestone that highlights the soaring financial
reserves of western Europe’s biggest oil-producing state.

The Nordic country has been building the fund for 14 years in an
attempt to preserve its oil wealth for future generations. Today it
owns about 1 per cent of all global stocks and counts as the world’s
second biggest sovereign wealth fund after Abu Dhabi’s.

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The new peak comes after a volatile period for the so-called “oil
fund”, which declined 23 per cent during the global financial crisis
in 2008 before recovering most of the losses last year.

The fund has become one of Norway’s biggest sources of global
influence, with the government using it to press foreign companies on
issues such as corporate governance, labour rights and the
environment. Wal-Mart, the US retailer, and Rio Tinto, the Anglo-
Australian mining group, are among dozens of companies excluded from
the fund for alleged ethical violations.

In another sign of muscle-flexing, Norway’s central bank, which
manages the fund, last month sued Citigroup for losses resulting from
alleged misstatements during the financial crisis.

Yngve Slyngstad, chief executive of Norges Bank Investment Management,
which manages the fund, said it had “grown faster and bigger than most
people expected” when it was set up with an initial NKr1.98bn in 1996.

He attributed the growth to a surge in oil prices since 2002 and
increased investment in equities, particularly in emerging markets, as
the fund has become gradually more aggressive in its investment
strategy. The fund raised its share of equity investments to 60 per
cent from 40 per cent between 2007 and 2009.

Norway’s finance ministry, which oversees the fund, gave its approval
this year for the fund to invest up to 5 per cent of its assets in
real estate, marking a further diversification of the portfolio.

The fund is intended to ensure that Norway continues to benefit from
its oil windfall long after North Sea reserves run dry and to limit
inflationary pressures by restricting the amount of oil revenues
available for government spending.

In “normal” years the government may spend 4 per cent of the fund’s
value – although this rule has been flouted over the past two years as
Oslo sought to cushion the impact of the global downturn.

At the end of June this year, a total of NKr2,379bn in capital had
been poured into the fund since its inception, with returns amounting
to NKr430bn.

Norwegian oil production has fallen by half from its peak a decade ago
as North Sea reserves decline. But 40 per cent of discovered resources
on the Norwegian continental shelf have yet to be extracted, ensuring
that capital will continue flowing into the fund for decades to come.