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Norwegian oil fund falls 23% in 2008

2008 was the worst year in the history of the Government Pension Fund. Norway’s ministry of finance said the results were not ‘satisfactory’. Last year, the fund was given the go-ahead to increase its real estate allocation to 5% and has since been building up its expertise in the field.

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.

Last April, the fund – managed by Norges Bank Investment Management – was given the go-ahead to increase its real estate allocation to five percent. The allocation will be built up over several years. Norges said in the fund’s annual review it had “built up the expertise needed to be able to start implementing this strategic decision” during 2008.

However, when it came to investment returns Norges 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 a 8.71 percent stake in paper and packaging group Mondi and a 7.8 percent interest in infrastructure group Babcock & Brown. 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.