At the end of the year, however, the volume of the fund was still 12.43 trillion Norwegian kroner (1.15 trillion euros). “The market was affected by the war in Europe, high inflation and rising interest rates,” said chief fund manager Nicolai Tangen, explaining the poor business.
“This had a negative impact on both the stock and bond markets at the same time, which is very unusual.” All sectors of the stock market, with the exception of energy, have posted negative returns, it said.
End of the record series
The Norwegian sovereign wealth fund had already reported a record loss of 1.68 trillion Norwegian kroner (around 170 billion euros) for the first half of the year in the summer, but the loss for 2022 as a whole was somewhat lower. The loss ended a record streak in which the fund’s annual returns surpassed 1 trillion kronor in each of 2019 and 2021. In the past year, the return on the multi-trillion fund was minus 14.1 percent.
Tangen reported the second-highest gain in the fund’s history in 2021. However, investments in technology and social media companies in particular lost value in the past year. These companies are struggling with higher interest rates and growing competition among platforms for advertising budgets that are being eaten up by skyrocketing inflation.
Central banks in many countries have aggressively raised interest rates to combat inflation. This leads to higher borrowing costs and lower profit margins for companies.
How the fund is divided
However, because the Norwegian krone lost value against several major currencies, the volume of the sovereign wealth fund increased slightly despite the negative return: at the end of 2022 it was around 12.43 trillion krona. In addition to currency effects, this was also related to cash inflows. From a long-term perspective, the fund has appreciated significantly in value over the years. In 2019 it reached the ten trillion crown mark for the first time.
Almost 70 percent of the fund shares are invested in equities, 27.5 percent in bonds and 2.7 percent in real estate. The fund holds shares in over 9,300 companies worldwide, which account for 1.3 percent of all listed shares. Among others, shares are held in Microsoft, Apple and Nestle.
New renewable energy projects
There are also investments in the field of renewable energies. The fund invested again directly and on a large scale in mid-January: shares in offshore wind and solar energy projects in Spain were bought for EUR 600 million, the fund explained. It is the second such transaction since the Norwegian parliament approved it in 2019.
According to the information, the fund is taking over 49 percent of a portfolio from the Spanish energy group Iberdrola. This includes seven solar projects and five offshore wind farms, which have a total annual output of 1,265 megawatts – enough to cover the electricity needs of 700,000 Spanish households.
Shares also in the second largest offshore wind farm
The Spanish authorities still have to approve the investment project. The deal is expected to close within the first three months of this year. According to the fund, nine of the twelve projects are still under development and should be completed by 2025.
In April 2021, the fund announced its first direct investment in renewable energies: it bought a 50 percent stake in what was then the world’s second largest offshore wind farm off the Dutch North Sea coast for EUR 1.38 billion.
Investments mostly abroad
The Norwegian government set up the fund, established in 1996, with tax revenues from the oil and gas industry. In the wake of the energy crisis, Norway benefited greatly last year from increased demand as a result of the loss of Russian gas supplies. However, the fund invests mostly abroad in order not to influence Norway’s economy too much. The fund is therefore officially called the Pensionsfonds Ausland.
Thanks to the sovereign wealth fund, every Norwegian has paper assets of $230,000, it was said at the beginning of 2022. That should have changed with the losses, but there is currently no official information or calculation. The aim of the fund is to share the oil revenues with future generations. The money is intended to protect the economy against fluctuating oil prices and help finance the Norwegian welfare state.
