Norwegian oil fund falls 23% in 2008

Falling equity values made 2008 the worst year in the history of the Government Pension Fund. The fund holds investments in several listed Macquarie and Babcock-affiliated infrastructure funds.

Investment returns at the $329 billion Norwegian oil fund plummeted in 2008 falling on average by 23 percent – the largest drop in the pension’s history.

The Government Pension Fund of Norway, as it is officially called, saw investment returns fall by NOK633 billion ($91.6 billion; €71.7 billion) last year driven by falling equity values. The losses were offset overall by currency gains and rising petrol revenues, helping the pension’s total value rise to NOK2,275 billion ($329 billion) from NOK2,019 billion.

Norges Bank, which manages the fund, said the pension’s returns from equities were down 40.7 percent in 2008, while fixed income investments were down 0.5 percent. Norway’s allocation to equities is set to rise to 60 percent over the coming years.

At present, Norway has an actual allocation to equities of 49.6 percent and owns 0.8 percent of the world’s shares, including interests in several listed funds managed by infrastructure heavyweights Macquarie Group and Babcock & Brown.

The fund has a 7.8 percent interest in Babcock & Brown Infrastructure, a 4.0 percent interest in Babcock & Brown Wind and interests of less than 1 percent in Babcock & Brown and several other Babcock-affiliated entities. It also has interests of less than 1 percent in Macquarie Group and eight Macquarie-affiliated listed funds, including Macquarie Airports and Macquarie Infrastructure Group.

The oil fund has no plans to become a direct private equity player.

The poor results have also shed light on Norges’ management of the fund, with Norway’s ministry of finance saying in a statement the results were “not satisfactory”.

“After nine years of outperforming the benchmark, Norges Bank’s underperformance in 2007 and 2008 has dominated the accumulated results,” the ministry said. Norges’ role will be discussed by the  country’s parliament before Easter in an annual debate of the fund.