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Norway’s sovereign wealth fund, charged with growing oil dividends for future generations, has been caught up in the turmoil in the global economy. It has just ceded its first place in value to the Chinese state fund China Investment Corporation (CIC).
With the rise in interest rates and inflation, the Norwegian fund recorded further losses in the third quarter. That’s how he lost his crown as the biggest fund in the world. Its portfolio has shrunk by tens of billions of dollars since January. Not enough to destabilize this unsinkable financial markets. Its current value, 1.170 billion dollars, is equivalent to three times the GDP of Norway. And its losses in 2022 are all relative: they are still lower than the gains made last year. 2021 will have been a wonderful year for the Norwegian fund, with a record return on investment of more than 14%.
Superprofits in gas and oil
Since its creation in 1990, this sovereign fund created to manage the oil windfall, has been regularly supplemented by a fraction of hydrocarbon revenues. With the flight crude and gas prices, the income redistributed to the fund will increase sharply this year as well as in 2023 and 2024, according to forecasts by its analysts. It is up to its director to make the best use of it and find the right investments to make it grow, and thus erase the current losses. The fund invests two-thirds of its portfolio in equities. This may seem risky but its participation is always very limited, no more than 5% of the capital of a company. It manages capital over the long term. It is therefore not subject to annual results obligations as are the hedge fundsprivate investment funds that must satisfy their shareholders.
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Will the Norwegian fund’s current setbacks harm its reputation?
The Norwegian fund is a European exception among the selection of the world’s top ten. It is the only one to consistently promote responsible investor values from an environmental and social standpoint, supported by precise information published in its annual report. And so far, it has worked out pretty well for him. Analysts are confident it should quickly regain its leading position. He will therefore remain a very influential and widely listened to player in global finance. Most of the other heavyweights come from the Gulf and especially from Asia. Three of them are Chinese, including the current number one, the China Investment Corporation, a fourth is from Hong Kong, two from Singapore, and three others from Kuwait, Abu Dhabi and Qatar. They conform to the higher interests of their country of origin.
What concrete consequences on their investments?
Most of them have not given up their investments in Russia, despite Western sanctions. And today, faced with inflation and rising interest rates, which they are also experiencing, they are looking at long-term strategic investments for their countries to diversify their portfolios. Gulf funds, for example, invest heavily in infrastructure projects in Egypt. Hoping for a financial but also diplomatic return on investment. The most powerful sovereign wealth funds could why not become key players in the reconstruction in Ukraine. They have ample means. Their assets exceed the $10 trillion mark.
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