Norway's sovereign wealth fund hits US$1 trillion in value

OSLO • Norway's sovereign wealth fund hit US$1 trillion (S$1.35 trillion) for the first time yesterday, driven higher by climbing stock markets and a weaker US dollar.

The milestone valuation was reached at 2.01am in Oslo, Norges Bank Investment Management said in a statement.

"I don't think anyone expected the fund to ever reach US$1 trillion when the first transfer of oil revenue was made in May 1996," Mr Yngve Slyngstad, chief executive officer of the fund, said in the statement. "Reaching US$1 trillion is a milestone, and the growth in the fund's market value has been stunning."

But the extreme wealth is not unalloyed good news. The fund's sheer size has made it a challenge to find markets big enough to invest in.

Meanwhile, Norway's politicians are finding it hard to resist the temptation to raid the world's biggest state piggy bank, with the petro-dollar addiction threatening to overheat the US$400 billion economy.

Mr Slyngstad recently suggested that it is now largely fruitless for the fund to enter new asset classes such as infrastructure because that would be costly and deliver only a blip on overall returns. 

The investor is also retrenching its global bond portfolio, cutting 23 currencies down to just three - the US dollar, the euro and the pound sterling. The fund says it does not make sense to have more diversification in a world in which prices and rates are converging.

  • 550

    Number of people the fund employs in offices across the world (Oslo, New York, London, Shanghai and Singapore).

    0.02%

    Percentage of assets that management costs are equivalent to in the most recent quarter, down from 0.07 per cent five years ago.

Its huge size has also driven the fund to respond to problems with trading by devising elaborate strategies to hide its selling and buying from anyone seeking to front-run its activities.  But being big has its advantages, especially for a lean organisation like Norges Bank Investment Management.

The fund employs only about 550 people in offices across the world (Oslo, New York, London, Shanghai and Singapore). Management costs were equal to just 0.02 per cent of assets in the most recent quarter, down from 0.07 per cent five years ago.

So what lies ahead? Norway expects the fund to keep growing through 2025, when it is predicted to hit 10.5 trillion kroner (or S$1.8 trillion at today's exchange rate). But such estimates are notoriously unreliable. Its current size already exceeds the milestone it was not expected to reach until next year.

With interest rates at record lows and returns hard to come by, the fund's management is growing less optimistic. Central Bank governor Oystein Olsen has warned that the decline in oil prices means the fund may already have passed its peak.

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A version of this article appeared in the print edition of The Straits Times on September 20, 2017, with the headline 'Norway's sovereign wealth fund hits US$1 trillion in value'. Print Edition | Subscribe