Norway’s US$1.6 trillion sovereign wealth fund failed to meet its benchmark for the first time in five years due to losses in unlisted real estate even as stock markets rebounded.
The fund returned to profit last year, gaining 16.1%, equivalent to about US$213 billion, according to a statement on Tuesday. It fell below its benchmark by 18 basis points, having recorded the previous miss in 2018.
Created in the 1990s to manage Norway’s oil and gas revenues abroad, the fund is the world’s biggest single owner of equities. Its returns are highly dependent on market movements.
“It’s been a really tough market for real estate generally, and debt levels have been pretty large,” Chief Executive Officer Nicolai Tangen told reporters in Oslo.
The fund’s losses in real estate drove an overall underperformance in 2023, as its property holdings mean that it owns less stocks and bonds, Deputy CEO Trond Grande said. That leads to a negative relative return when those markets do well, with real estate dragging down outperformance in both equities and fixed income.
The fund — known as Norges Bank Investment Management — invests according to a strict mandate defined by the Finance Ministry, and seeks to make most of its limited leeway. It also holds assets in renewable infrastructure, but is barred from some asset classes such as private equity. US investments made up 46.9% in 2023, versus 43.1% a year earlier.
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“It feels like a good place to be with a large part of the fund,” Tangen said during an interview with Bloomberg TV. “We are pretty happy with the mix we have now.”
Tangen has spent the past two years warning that the fund’s growth over the last 25 years isn’t likely to continue in an environment of where borrowing costs have risen from zero and inflation has again become a factor for investors to consider.
“We tend to be pretty close to the index unless we see big opportunities either way — and so now we are relatively equal weight,” Tangen said on Tuesday.
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Speaking at the World Economic Forum in Davos earlier this month, Tangen reiterated he was bracing for lacklustre performance from the markets in the years to come as inflationary pressures are likely to remain.
His steps toward benchmark-beating performance are to be more long-term, more contrarian and more active on the negative selection, he has said.
NBIM gained about 21% on stocks — which made up more than 70% of its assets — with a slight underweight tilt in the asset class. It edged up 6.1% on its fixed-income investments and saw its unlisted real estate holdings drop more than 12%, while the return on unlisted renewable-energy infrastructure was 3.7%.
Wealth Fund Annual Relative Return | Measured in percentage points
The fund measures itself against a benchmark index based on the FTSE Global All Cap Index for equities and Bloomberg Barclays indexes for fixed income. The investor has argued for its mandate to be broadened to private equity, saying that buyouts in particular have meaningfully outperformed public equities.
Technology stocks and the energy sector are now equal weight in the portfolio, Tangen said.
“It really is a winner-takes-it-all economy and it’s amplified by AI because it’s so incredibly expensive to train the models that you really have the winners becoming bigger,” Tangen said Tuesday. “I think it will last for some time.”
The Norwegian government deposited 711 billion kroner (US$68 billion) into the fund in 2023. The fund’s market value has now ticked up to US$1.6 trillion.
