Adverse conditions in the global markets took a toll on Norway's Pension Fund, the world's largest sovereign fund, in the second quarter.
Key global factors such as low interest rates, drop in oil price, poor returns on bonds, easing returns in the US markets put together evaporated $8.8 billion (73billion Kroners) from the Norway's Pension Fund, which suffered losses for the first time in the past three years.
The total market valuation of Norway's Pension Fund is estimated to be $863bn. The average return of the Fund during 1998 and 2014 was 5.8 percent.
Norway's Pension Fund mostly invested in the US and European markets. Norway generally parks its oil revenues into the fund to generate revenues for pensions and to meet other government expenses.
Norway's Pension Fund has also substantially invested in bonds, but poor returns further impacted the fund's performance.
It's estimated that loss would be 0.9% during the second quarter. Low interest rates, sluggish US stock markets, weakening bond markets were the major reasons for this heavy loss. Norway government uses the revenues generated by its investment through the Fund for payment of workers' expenses and pension of government employees.
The ongoing crisis in the Greece economy has dampened the market sentiment not only in the European Union (EU), but also the US. This further resulted in uncertainty in the US market and probably prompting the Fed to go for the hike in the interest rates.
The investment made in the US markets resulted in negative returns and this made huge impact on the Fund's performance, according to the Norway officials.
It's estimated that Norway holds about one percent of global stocks. This huge holding makes the country as one of the influential investors in the global markets. Norway's Pension Fund registered 3.4% loss on $55 billion investment in the US treasuries and 1.4% loss on stocks in the US markets.
About 20% of the corpus fund has been invested in the US markets alone. The Norway's Pension Fund has also invested substantially in the Chinese market and suffered losses from the mining industry. However, the investment made in the Chinese real estate sector was profitable to some extent.
Few months ago, Norway's Pension Fund has taken a major decision to dump all coal-based investments. The fund is one of the top 10 investors in the global coal mining sector. Norway government considered investment in coal companies could be a financial risk. This decision could affect about $10-bn investment in coal-based projects.
Join the Conversation