Status: 08/18/2021 7:15 p.m.
Norway finances its extensive social benefits through a state fund that invests oil revenues primarily in stocks. The technology boom on the stock market has brought the state high revenues.
Norway has been investing its income from oil and gas production in the financial markets through a sovereign wealth fund for years – with success. In the first half of 2021 alone, the foreign pension fund, also known as the oil fund, generated a return of 9.4 percent.
The sharp rise in global stocks, especially energy, financial and technology stocks, brought the fund a total of 990 billion crowns (around 95 billion euros) between January and June, as the world’s largest sovereign wealth fund announced today. That corresponds to around 17,000 euros for every Norwegian. The fund, worth around 1.2 trillion euros, invests in more than 9100 companies worldwide.
Inflation as a risk
On June 30, the fund had a total value of 11.67 trillion crowns (1.11 trillion euros). “Equity investments made the most positive contributions to returns in the first half of the year,” said Nicolai Tangen, head of Norges Bank Investment Management. Investments in the energy and financial sectors and in technology companies would have paid off in particular.
At the same time, however, the fund boss warned of the consequences of global inflation. Rising prices around the world could result in unprecedented losses. Because inflation could ultimately lead to much higher interest rates. This in turn would hit the fund’s portfolio multiple times, Tangen told the news agency Reuters.
Because both the bond and stock markets would be burdened. It could lead to declines in the value of the entire portfolio, “as we have never seen before,” said the hedge fund manager.
More than 14 billion euros invested
A year ago, the fund had made a loss of just under 18 billion. In the first half of 2020, the corona crisis caused the stock markets to collapse and brought many branches of the economy to a standstill. In the first quarter of 2020, when the pandemic began, the minus was even 130 billion euros.
Over the course of the year, however, the oil fund was able to recover. In the end, the bottom line was a plus of 1.07 trillion Norwegian kroner, the equivalent of around 102 billion euros. So the new profits are not entirely surprising.
14.1 billion euros were withdrawn from the fund in the past six months. 72.4 percent was invested in stocks, 25.1 percent in bonds, and 0.1 percent in unlisted infrastructure and renewable energy. In April, the Norwegian Ministry of Finance announced that it would simplify its investment policy and focus less on small companies in the future. The fund is also expected to hold back when it comes to investing in emerging markets.
Protection against oil market problems
Norway set up the fund in the 1990s to protect the economy against fluctuations in oil prices and to finance the extensive benefits of the welfare state. It also acts as an insurance for future generations when it is no longer possible to drill. It is fed with the income from Norwegian oil and gas production, administered by the central bank on behalf of the Ministry of Finance and invests in large corporations such as Microsoft, Apple and Amazon.
In Germany, too, there are repeated calls from various directions that the pension funds should be more closely linked to the capital markets – for example according to the Sweden model. Part of the gross income could thus flow into a statutory share pension.