The Norwegian sovereign wealth fund lost 170 billion euros in valuation in the first half of 2022

What is called a slide to the bottom of the fjord…

The Norwegian sovereign wealth fund is the Norwegian pension fund, all the country’s wealth, derived from oil, capitalized for all inhabitants. This money invested in the international financial markets is for the benefit of the country’s future generations, when the oil harvest will have dried up in a few decades. It is the largest sovereign wealth fund in the world, with a total valuation of 1,250 billion euros as of mid-August 2022. Heavily exposed to equities by almost 70%, this fund logically suffered a 14.4% drop in its valuation in the first half of the year. 2022. The biggest half-year loss since 2008, that is, no less than 170 billion euros in depreciation. But nothing serious.

Up to €500 billion in predicted losses

Nicolai Tangen, head of the Norwegian sovereign wealth fund, even warned that the state investment fund could lose up to 500 billion euros over several years in a degraded environment. In six months, 170 billion euros have already disappeared. Its loss in the first 6 months exceeds all gains made in 2021 (157 billion euros). However, the fund’s return fell less than its benchmark, which saved around €16 billion. The fund’s 272 managers, analysts and traders proved that, unlike critics, they are not mere management employees with no added value. However, its leeway and flexibility remain limited and supervised. The external managers selected by the fund also made it possible to cushion the fall in the markets.

No short selling, so no playing in falling markets

Unlike the hedge fund (AKO Capital) that Nicolai Tangen founded in the early part of his career, short selling is not authorized in the Norwegian oil fund, Les Echos recalls. However, it makes it possible to limit losses in downturns of markets. Rising interest rates and correcting world stock markets heavily penalize the fund, which is mainly invested in just two asset classes, equities and bonds. Unlisted properties, which offer protection against inflation, yielded 7.1% in the first 6 months of the year, but represent only 3% of its capital.

If the Norwegian fund sells… Financial markets fall

The size of this fund is such that if the Norwegian fund starts selling securities in order to reduce its risks, it will actually push the financial markets down. Its weight being high (1.5% of all global positions) in relation to other market players, each of these decisions directly influences stock market prices.

A fund almost 70% invested in stocks

Shares (68.5% of its assets) are down 17%. The sector that suffered the biggest drop was technology (-28%). The fund was penalized for its heavy investments in Meta, Amazon, Apple, Microsoft, Alphabet, Tesla and Netflix. On the other hand, shares in the oil sector (13%) allowed him to make money, namely through investments in Shell and Exxon Mobil.

Almost 28% in bonds

But if the increase in raw materials boosted this sector, it also fueled inflation and a strong recovery in interest rates. Unsurprisingly, the Norwegian sovereign wealth fund’s bond portfolio (28.3% of assets) fell by 9.3%. In its reallocation of capital, the investor privileged the public debt of the United States (Treasury) and Canada to the detriment of French, Italian and British debt in particular.

Rise of courses

Thanks to this summer’s recovery in the stock markets, which concentrate most of its investments, the fund’s assets returned to close to balance in mid-August, at 1,250 billion euros, that is, three times the gross domestic product. . of Norway in 2021.

New payment of 36 billion euros thanks to oil

This year, thanks to rising oil prices, the fund received 36 billion euros from the Norwegian state. This additional money will allow him to gradually invest when stocks fall, which will normally allow him to take more advantage of stock market rebounds. With all asset classes combined, the United States remains the fund’s main investment zone with almost 45% of its capital. This year, France (4.5% of assets) has dropped one position from 4th to 5th place in favor of Switzerland (4.7%).

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