Tech Stocks Lead Norway’s Pension Giant to 6.3% Return in Q1

Strong gains from equities helped Norway’s sovereign wealth fund return 6.3% during the first quarter of the year to help raise its asset value to $1.6 trillion, larger than any pension fund in the world. Despite the robust gains, the performance fell just short of its benchmark’s return of 6.4%.

“Our equity investments had a very strong return in the first quarter, particularly driven by the tech sector,” Deputy CEO Trond Grande said in a statement.

The Government Pension Fund Global, also known as the “Oil Fund,” because it is funded by revenue generated by Norway’s North Sea oil fields, increased in market value by more than 1.95 trillion kroner ($176.7 billion) during the quarter ended March 31 to just under 17.72 trillion kroner. Approximately 1.21 trillion kroner of that was from its investment gains.

Norges Bank Investment Management, which manages the pension giant, said that currency movements, particularly the weakening of the krone against several main currencies, increased the fund’s value by 647 billion kroner, while fund inflows added 96 billion kroner.

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The pension fund’s equity investments returned 9.12% during the quarter and were the only asset class not to decline in value during the three-month period. The portfolio’s fixed-income investments lost 0.35% during the quarter, while its unlisted real estate holdings lost 0.54%.

The GPFG’s unlisted renewable energy infrastructure assets were the biggest drag on the portfolio, losing 11.39% during the quarter. However, this had little impact on the quarterly results as the assets only account for approximately 0.1% of the entire portfolio.

As of the end of March, the pension fund’s asset allocation was 72.1% equities, 26.0% fixed income, 1.8% in unlisted real estate, and 0.1% in unlisted renewable energy infrastructure. It also reported a 10-year annualized return of 7.19% and an annualized return of 6.28% since the start of 1998.

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Tags: Equities, first quarter 2024, Government Pension Fund Global, Norges Bank Investment Management, Norway, oil fund, Pension Funds, Sovereign Wealth Fund, tech stocks, Trond Grande

Pension funds, sovereign wealth funds, insurance firms and family offices ‘could be caught unaware by a dramatic rerating of credit risks across the asset class.’

Citing the potential risks and opaque nature of the rapidly growing private credit market, the International Monetary Fund is calling on authorities to consider a more proactive supervisory and regulatory approach to the asset class, which it said, “requires careful monitoring.”

The IMF warned in its recently released Global Financial Stability report that “the interconnections and potential contagion risks” faced by many large financial institutions due to exposure to the asset class are “poorly understood and highly opaque.” The report identifies vulnerabilities created by “relatively fragile borrowers,” as well as the increased exposure of pensions and insurers to private credit.

In its report, the IMF said that the migration of credit provision, which is the estimation of potential losses a company might experience due to credit risk, from regulated banks and public markets to private credit firms creates several potential vulnerabilities.

“Whereas bank loans are subject to strong prudential regulation and supervisory oversight, and bond markets and broadly syndicated loans to comprehensive disclosure requirements that foster market discipline and price discovery, private markets are comparatively lightly regulated and more opaque,” the report stated.

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The report noted that private credit loans are unrated, rarely traded, and are typically marked to model by third-party pricing services without standardized contract terms, adding that “rising risks and their potential implications may therefore be difficult to detect in advance.” It also warned that “severe data gaps” prevent a thorough and accurate assessment of how private credit affects financial stability.

“Because the private credit sector has rapidly grown, it has never experienced a severe downturn at its current size and scope, and many features designed to mitigate risks have not yet been tested,” the report stated. Although the report said that “immediate risks may seem contained,” it warned that because the private credit “has meaningful vulnerabilities,” and is growing rapidly under limited oversight, that “if these trends continue, private credit vulnerabilities may become systemic.”

Some of these vulnerabilities, the report cautioned, could generate “large, unexpected losses in a downturn,” particularly because private credit investments involve relatively small borrowers with high leverage.

“Some insurance and pension companies have significantly expanded their investments in private credit and other illiquid investments,” the report said. “Without better insight into the performance of underlying credits, these firms and their regulators could be caught unaware by a dramatic rerating of credit risks across the asset class.”

The IMF’s report recommends authorities should take a more “intrusive supervisory and regulatory approach to private credit funds, their institutional investors, and leverage providers.” It also suggests closing data gaps so that regulators can assess risks more comprehensively, closely monitoring and addressing liquidity and conduct risks in funds, and implementing product design and liquidity management recommendations from the Financial Stability Board and the International Organization of Securities Commissions.