The best year in the fund’s history
Gains in international equity and fixed income markets led to a record annual return for the Government Pension Fund Global in 2009. The fund returned 25.6 percent, equivalent to 613 billion kroner. This was 4.1 percentage points higher than the return on the benchmark portfolio.
“Developments in 2009 must, in the same way as 2008, to a large extent be viewed in light of the financial crisis. The fund’s long-term management strategy ensured that we got through this period in a good way,” says Yngve Slyngstad, CEO of Norges Bank Investment Management (NBIM).
Compared with the benchmark portfolio set up by the Ministry of Finance, the fund’s fixed income portfolio had an excess return of 7.4 percentage points in 2009, against -6.6 percentage points in 2008. The fund as a whole had an excess return of 4.1 percentage points, compared with -3.4 percentage points the previous year.
“The values have come back much sooner than we could have expected. The parts of the fixed income markets that stopped working during the financial crisis gradually returned to more normal conditions. This contributed a lot to the strong excess return,” says Slyngstad.
The fund’s market value was 2 640 billion kroner at the end of 2009, up from 2 275 billion kroner a year earlier. Capital inflows of 169 billion kroner were the lowest since 2004 and less than half of the record amount in 2008. At the same time, a stronger krone reduced the market value by 418 billion kroner. Fluctuations in the krone have no effect on the fund’s international purchasing power.
Since 1998 the fund has had an annualised gross return of 4.7 percent in international currency. The annual net real return in the same period has been 2.7 percent, up from 1 percent a year earlier. The fund has had an annual excess return of 0.25 percentage points since 1998.
The fund’s average holding in international equity markets rose to 1 percent at the end of 2009 from 0.8 percent a year earlier, while the holding in Europe increased to 1.8 percent from 1.3 percent. The fund had 62.4 percent of its investments in equities at the end of 2009.
“NBIM was strengthened in a number of areas in 2009, with a new governance model and organisation structure. We used new methods in our ownership work and launched two new strategic focus areas, well-functioning markets and water management,” says Slyngstad.
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