‘$164 Billion Lost’: Norway Sovereign Wealth Fund Posts Biggest Loss Since 2008
If you thought the $3.6 billion of bitcoin seized by the US feds in their historic silk road crypto bust was big, just wait until you hear how much “the world’s biggest single owner of equities” lost. Norway’s USD$1.3 trillion (AUD$1.8 trillion) sovereign wealth fund has posted its worst loss since the 2008 financial crisis, losing 14.1 per cent in 2022, equivalent to about $US164 billion (AUD$232 billion).
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The fund, established in the 1990s to invest in Norway’s oil wealth, maintains a long-term investment horizon, generating an average return of 6 per cent throughout its quarter-century existence, according to coverage by the Sydney Morning Herald. But despite its success, chief executive officer Nicolai Tangen spent 2022 warning the dream could be over. And he was right.
“We are now in a very different situation,” Tangen said in a Bloomberg TV interview. “You are seeing a reversal of globalisation, you’re seeing rates having moved up, and it’s, of course, very unclear where they’re going from here. So returns going forward will be different.”
Bringing an end to the fund’s three-year track record of soaring profits, it seems the chickens have come home to roost as stocks and bonds were hit by the Ukraine war and inflation. The fund is “invested in 9,000 companies in 70 countries, which means “there is just nowhere to hide,” according to Tangen. Of those 9,000 firms, the single-largest stock market loss was the fund’s investment in Amazon (AMZN.O), which saw its value fall by 56 billion crowns. Behind Amazon was Meta (META.O), with a loss of 52 billion, and Tesla (TSLA.O), with 47 billion lost.
Surprisingly, the fund’s worth increased by 89 billion crowns (roughly AUD$12.8 billion), year-on-year, partly because of the weak Norwegian currency and record-breaking cash inflows of 1.1 trillion crowns. Moreover, despite the return on investment dropping by minus 14.1 per cent, the fund ended up 0.88 percentage points better than the return on the fund’s benchmark index.
Because the fund invests in the petroleum production earnings of the Norwegian government, Norway profited from high energy prices brought on by the conflict in Ukraine as a significant crude exporter and the top gas provider to Europe after a decline in Russian gas supplies.
“We have to be very conscious of the fact that the inflow came against a tragic backdrop in Europe,” Tangen said. “But it is an isolated mathematical fact that when oil and gas prices are higher, there is more revenue to the (Norwegian) government and more inflow into the fund.”
To rectify the issue, Tangen has devised a three-year plan focused on tackling the “risk factor” of rising inflation, with particular attention given to what’s happening in China, citing potential price rises.
“Inflation remains a risk factor and, in particular, tied into what will happen when China really kicks in on the consumption side because it could drive a lot of prices globally,” Tangen told Reuters. “And then, of course, we have still geopolitical hotspots.”
The fund is also evaluating future investments in renewable energy storage and transmission, broadening its renewable infrastructure’s scope to leverage Norway’s oil and gas earnings to power a green transformation.