Norway Wealth Fund Assets Surge To Over $1 Trillion On Massive 70% Allocation To Equities

Tyler Durden's picture

Last December we joked that the Norwegian sovereign wealth fund had responded to sinking returns and withdrawals required to fund budget deficits by allocating another $130 billion in assets to what appeared to be an already massively overpriced equity bubble in return for an extra 40bps of "expected average annual real returns." (see: Norway Buying $130 Billion In Global Equities As Sovereign Wealth Fund Continues To Bleed Cash).  The extra equity purchases pushed the fund's total equity allocation to a staggering 70% of their $860 billion in assets under management. 

After being forced to withdraw at least $15 billion to fund 2017 budget deficits, the $860 billion Norwegian sovereign wealth fund has announced that it will change it's portfolio allocations to try to make up the difference.  The change will result in 75% of the fund's capital being allocated to global equities, up from the current 60%.  Sure, because funneling another $130 billion to the global equity bubble is just the prudent thing to do for an extra 40bps of "expected average annual real returns."

The central bank’s board, which oversees the fund, on Thursday recommended an increase in the equity share to 70 percent from 60 percent. That will raise the expected average annual real return to 2.5 percent over 10 years and to 3.5 percent over 30 years, compared with 2.1 percent and 2.6 percent, respectively, under the current setup.

 

The world’s largest sovereign wealth fund said that it expects an annual return of only 0.25 percent on bonds over the next decade and that the expected “equity risk premium,” or return on stocks over government bonds, will be just 3 percentage points in a cautious estimate.

 

“In our analyses, this is clearly evident in global data: internationally, growth in firms’ cash flows and equity returns are correlated with growth in the global economy,” Deputy Governor Egil Matsen said in a speech Thursday in Oslo. “Global economic growth in the coming years is expected to be below its historical level. This ‘pessimism’ is partly related to the driving forces behind the low level of the real interest rate.”

Alas, with global equity bubbles becoming ever more bubblier with each passing day, the bet on equities has paid off 'bigly' for Norway and pushed their AUM to over $1 trillion for the first time ever.  Per Bloomberg:

Norway’s sovereign wealth fund hit $1 trillion for the first time on Tuesday, driven higher by climbing stock markets and a weaker U.S. dollar.

 

The milestone valuation was reached for the first time on Sept. 19 at 2:01 a.m. in Oslo, Norges Bank Investment Management said in a statement on Tuesday.

 

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

Meanwhile, the fund's record AUM comes despite taking withdrawals for the first time ever in 2016 and expectations that another 70 billion kroner will be withdrawn this year to help offset budget deficits.

Norway’s government last year made direct withdrawals from the fund for the first time in its history and is expected to take out about 70 billion kroner this year. Meanwhile, Norway has lowered the fund’s expected return to 3 percent from 4 percent.

 

The fund has been given permission to raise its stock holdings to 70 percent from 60 percent, with an equivalent cut in bonds. That could help it eke out higher returns, or at least maintain the 8 percent annualized real return it’s had over the past five years.

 

But Slyngstad also recently said he sees fundamental issues with the global economic system and trade, which is being buffeted by increasing global political risk. And that’s not good for a fund that owns 1.3 percent of global stocks.

So, it appears that Norway's reckless equity bet has paid off for now...but, what is the saying about 'he who laughs last?'

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Inzidious's picture

They need to rename these funds to "Global central bank fiat collection pools", which then need only 1 page in the perspectus: "Collect large amounts of printed currency until we can't!"

vato poco's picture

it's always ironic when sophisticated american/western european finance guys like the Tylers snicker at Norway making 1%-4% withdrawals from their sovereign wealth fund to paper over minor budgetary glitches. because the US and all the highly-educated globalist sophisticated  western nations have, of course, correspondingly much larger and better run sovereign wealth funds, right??

what's that? they don't??

huh. so WHO are the only adults in the room again? a: welllll, that'd be the norwegians, wouldn't it.

Chryoprase the Troll's picture

Too right.

 

Norwegians withdraw a small amount from a fund that owns large amounts of diversified assets. Other countries print unsecured debt to fund their budget deficits.

JRobby's picture

There are no adults in the room, anywhere. There no longer is anything resembling honor, bravery or maturity.

When all the juveniles run for the exits it will be 10,000 times worse then trying to get into a Who concert through one set of doors.

HalinCA's picture

When the juveniles run for the doors, they will find them locked.  The AI algols will have got there first.

 

Market trip wires will shut them down.  The CBs will then orderly buy what ever the juveniles want to sell cat ontrolled prices ensuring there is no melt down.

 

I think that is the game plan ..  the alternate is a collapse much worse than ever seen before.  It cannot, will not be allowed.

Erek's picture

Boom!

Crash!

LOOK OUT!

Inzidious's picture

Yeah I agree with everything you said. Norway's fund is frontrunning central banks by having massive investments in equities, and making tons of money. I guess that was my point?

HopefulCynic's picture

I must have read another article. 

 

Tyler was complaining about allocating another 120 billion in to a very big bubble and making it bigger, for very little. 

SoDamnMad's picture

Quick Norway, add lots of Puts to your portfolio.

Justin Case's picture

That's what you get for being a socialist country, right in the top 5 no less. That i'll teach'em. They need to over throw that Gov't and return to capitalism. It's all great until you run out of other peoples's money. Socialism has never worked.

zvzzt's picture

Paper wealth until they cash in it's only of little use (dividends should be nice I guess). I dare them: sell a bit of the AUM and pay off as much public debt as you can.... After all, the AUM is for and by the people right? If they liquidate ~20% they are well in the clear.... 

 

http://www.nationaldebtclocks.org/debtclock/norway

The Black Bishop's picture

It's gonna be a lot of shrieking and crying when the bottom falls out on the equities market.

 

Being a Norwegian myself I find it stupid that they invest in the way they do. They sold off the Norwegian gold back in 2004 at bottom prices and havent reinvested after. I would like to see them make a new bigger pile of PM's and invest more in long term infrastructure. An extension of the railroad going up through northern Norway and on to Murmansk, connecting to the Russian/Chinese railroad system would be a smart move.

 

My bet is on Norway loosing 40-60% of the wealth fund once the SHTF.

secretargentman's picture

If government invests enough in the stock market, they'll just pass a law against markets going lower. See, it's easy when you're the entity with the power of the gun. 

JohninMK's picture

Sadly that comment is too true, 50% minimum given the currency risk.

Like many countries Norway has two parts, Oslo and the rest. Like others one is divorced from the others so whereas Oslo, being the paper money city is booming the rest of the country, where the real world intrudes, in places due to the oil crash is in dire straits.

Just like many pension funds etc they have chased yield into higher risk assets, but unlike them the sheer size of their purchases almost certainly made their investment increase in value. Once that is over they, like everyone else, are at the mercy of the markets.

As you say, they should have been piling money into long term infrastructure, not debt loaded commercial companies. Why is the West letting the Chinese buy this kind of stuff up, like UK power stations and water supply etc, when it has the capital to do it itself?

WallHoo's picture

"Why is the West letting the Chinese buy this kind of stuff up, like UK power stations and water supply etc, when it has the capital to do it itself?"

 

Now you tell us why...Privatisations to the public sector of China...The rent seeking comunist China has cought up with the stupidity of the west.

 

Are they smart?Are we stupid?Are our politicians pieces of shits?Or is it better for the state to shrink?Our states of course not the chinese one.

Justin Case's picture

It's capitalism and free enterprize. State owned entities are wasteful and inefficient. 

Happens all the time, standard proceedure. Generally business runs things moar efficiently than Gov't. In Canada the Gov't used to own Petro Canada. In all the years they owned it, it never made a profit. Patronage appointments made the company top heavy and because of the high salaries, it never made a profit. Once it went private the company did a 360. Purged all the upper management and made it a profitable company. Gov'ts should not be in business, they should only govern.

WallHoo's picture

Before posting such a dumb comment you should read the conversation above.

 

1. Selling a state company(British,canadian,french,greek) to another state(Chinese state companys,German state pension funds,Norweigian-Saudi sovereign wealth funds,swiss-japanese central banks etc...) is not free enterprize dumb ass...

 

2.Foreigners buying up assets of your country contributes to rent seeking activity's.Typicaly such "investments" involve oil companys,banks,roads,energy,electric managment systems,water,telecomunications,health care,education etc...All those ready public assets serve rentiers at your expense.Rent is not the same thing as profit.

 

3.Maybe petro Canada didnt report any profits but as you said big wages gaves purchasing power to people of canada.Maybe in a bad feudal way but it did...Now that there are profits generated from fucking oil,they(the profits) will leave canada for another country,and bypass the locals.Unless the owners are locals and are taxed as they should for such a rent.

 

4.Nobody cares that Canada is corrupt.

 

5.Its very easy for public companies to make profit.If people in Canada dont care its their problem.

 

6.Everybody welcomes a sound wealth producing investment such as cars,bikes,airplanes,furniture,electronics,industrial machinery,clothes,airplanes,ships etc..But guess what,those are almost never the investments made,those are always kept in the mother country,those crucial companies always build capital through exports and then that capital buys assets from banana republics in order to generate rents.

 

Im all for private enterprizes,i just dont want globalists,commies,faggots and goat fuckers buying up local assets.Law must be in the hands of the people.Money should never exceed the law of the land,the economy must be as localised(national) as possible.

 

The most succesfull countries of the 21st century(Germany and China),are fully mercantilist.The state owns much of the wealth producing sectors of the economy.It never allows foreign competition in.And with the capital created those pieces of shits go on a buying spree at the backs of everybody else,while dumb asses such ass you cheer for them.

 

You hold no moral upper ground(sjw style) with your "capitalism" rant.Your "free market thinking" is nothing new,nor succesfull.In the real world there are competing states,three classes of them.Some are well managed and crush the domestic markets of others ,some are the loosers that practice "capitalism".And then there is the currency reserve holder that can practicaly dictate the rules of the game(USA).

Justin Case's picture

Some people just can't understand that China now employs capitalist and socialist economic policies! Its ridiculous! How can people be so stupid! China has been reforming from communism for 30+ years now. So many people never change their mind, but never over something so stupid! its not like this is up for debate, 10 minitues on google will show anyone that China is no longer 100% communist.

China is, indeed, going through a transition, but it is not a transition from capitalism to communism. The evidence supports a conclusion that feudal appropriation has prevailed in both agriculture (during the commune-era) and industry (during the SRE-era) in the recent past and is now being displaced by capitalism in industry and increasingly in agriculture. In other words, China is going through a transition from feudalism to capitalism. I just don’t see calling such a transition socialism.

Capitalism will be much more robust if it’s not a monopoly of the West, but flourishes in societies with different cultures, religions, histories, and political systems.

From Wikipedia, the free encyclopedia

The socialist market economy is the economic model employed by the People's Republic of China. It is based on the dominance of the state-owned sector and an open-market economy, and has its origins in the Chinese economic reforms introduced under Deng Xiaoping. The ideological rationale is that China is in the primary stage of socialism, an early stage within the socialist mode of production, and therefore has to adapt capitalist techniques to thrive. Despite this, the system has widely been cited as a form of state capitalism.[1][2]

It's time to update yoar fictional mindset and resist fake news narratives of demonizing labels of countries the administrations cannot conquer.

WallHoo's picture

SJW much?

 

<<It's time to update yoar fictional mindset and resist fake news narratives of demonizing labels of countries the administrations cannot conquer.>>

 

Really?I have to do my update??I rest my case with what you said.You made it clear what is going on and i cant understand why you disagree since you yoarself said what is what...

 

China is practising state capitalism and it works like a charm.Where is the free enterprize now dumb-ass?Where is the gov inefficiency??My argument with the previous commenter "johninMk" was why do we let chinese state companies buy crucial western state companies and companies of rentier value.

 

You yoarself went on a rant about Canada's petro canada and how wonderfully was privatised blah blah blah...Is it not possible for Canada or UK to do what China does AS YOU SAID?

 

There is NO SUCH THING as capitalism.There are organised productive states,banana republics and currecy reserve holders.

Justin Case's picture

I'm surprised that they never put all the money in bitcoin. They can't lose on blockchain tecnology. Bitcoin, the money of the future that is going to reach $1,000,000.00 shortly. Guess they don't read zerohedge, where all the bitcoin experts reside. Their loss.

Panic Mode's picture

They treat people like a 3 years old. Budget deficit is not one off, it comes every year and it will only go up. Eventually, they have to go all in.

2banana's picture

All in!

Into stock makets with near historic high P/E levels.

What could go wrong?

squid's picture

70% in equities eh?

 

Easy come....

Easy go.

 

Squid

E.F. Mutton's picture

My 401K "surged" at one time.  It was awesome. 

That was 2007.  In 2009 it wasn't so awesome anymore.

baldknobber's picture

I know several regular working stiffs who had it figured in the nineties that if their 401k  kept growing at it's current rate the would retire as millionaires. In fact why not take a little of that home equity and speed that process up by 10 years. Last I heard they were all still working and wondering if they would be able to afford to retire at all

Victor999's picture

"So, it appears that Norway's reckless equity bet has paid off for now...but, what is the saying about 'he who laughs last?'"

 

It's all in paper fiat - nothing real there - so when the bubble goes, all the wealth will go with it.

ConfederateH's picture

I'll bet the few remaining Norwegian men with Viking blood in their veins just love the idea that the Judeo-Feminist run Norwegian government now has a $1T slush fund to use to blot out the last remaining vestiges of that Viking blood.  This despite the hundreds of billions they have already siphoned off over the last decades precisely for this purpose.

Manipuflation's picture

Well, the Norge are not on the Euro which helps.  

We have cash so let's go to the casino! 

Tugg McFancy's picture

I was going to make a going long at the top joke, much like every other smart ass will, but then I remembered...

...even if they take a 50% haircut they're still ahead of the loser countries who are up to their eyeballs in debt.

SmittyinLA's picture

Thats a lot of corporate director seats, I wonder how many US companies are run by foreign governments?

BritBob's picture

The EU will be after more money post Brexit. They have already told Norway to take more refugees.

 The Crazy EU

MEPs and legal experts have claimed the veto over the territory’s future after Brexit would give Spain special status among EU nation, when they should be on an equal level. 

The EU’s Brexit negotiating guidelines stated that the Brexit deal will not apply to Gibraltar without an “agreement between the kingdom of Spain and the UK”.

Experts have told the Telegraph that the veto could be illegal under EU law. 

Spain's Gibraltar claim has NO legitimacy and YES would be illegal. Google: ''Gibraltar – Some Relevant International Law'' (1 page) to find out why.

The Spanish claim to Gibraltar has no legitimacy.

Gibraltar – Spanish Myths and Agreements (single page):

 

https://www.academia.edu/34608739/Gibraltar_Spanish_Myths_and_Agreements

Thom Paine's picture

Maybe they lie.

Saying we are going to put in xxx billion, whilst selling into the rally

BurningBetty's picture

I beg to disagree. 

I'm probably one of the oldest ZH members and have read and seen much since the inception of ZH back in 2009(2010 for my part).

As a contrarian and a believer in free market forces this entire monetary system resembles nothing more than an advanced game of Monopoly. Just that in this game no-one is allowed to quit. And it's for real! Which means, there are real consequences.

When it comes to our wealth fund there really is a catch to it. Yes, I am one of the lucky 5 million people on this planet living in Norway. As it happens, the fund was established merely 20 years ago and has amassed 1,3% of the entire world's assets. And this despite the market crashes of 2001 and 2008. The central banks have clearly demonstrated that they are the rulers on this planet and will allocate freshly printed digits into the stockmarket (for how long, no one knows) regardless of the consequences. Oil is still energy source no.1 on the planet and unless this abruptly changes in a not so distant future Norway will have a decent amount of money coming in every year.

Now to my punchline. As one commentator here mentioned, even if the stockmarket crashes by 50-60% we will still have assets valued at 400-500BUSD and if history is any guide, Norway will continue allocating savings into world assets at depressed market levels, just as they did in 2001 and 2008. During these deflationary forces, real asset value will adjust itself because everyone playing this marketgame will be that much poorer. Unless the world completely collapses into Ragnarok and assets get seized without notice by governments in foreign nations where Norway has it's stake in, chances are that 5-10 years after the next big crash, when a new bull market is established, Norway will own even larger share of the world's mcap. Probably close to 5% of the entire world's wealth. 

I do own silver and gold but expecting the world to go up in ashes is unlikely, despite the NK-idiocy going on today. 

My rant for today. 

JohninMK's picture

Not sure about allocating savings after a crash, I get the objective but the amounts may be small if any as it would require surplus funds which it may not have at that time.

As the Government, like others, is very reluctant to cut spending or increase taxes it is already extracting money from the Fund rather than paying money in. That only leaves dividends/interest/unallocated as the source of any future opportunistic averaging investments and that and more may well be sucked out by the Government using 'the fund is a rainy day fund and that day is here' argument.

If that was its plan the Fund should be gradually increasing its cash or even PM element, but that would be against central bank policy.

GotAFriendInBen's picture

Just morconfirmation bear marhets will never be allowed to return

EVERYTHING lives and dies with the "market"

And dying isn't an option

Davidduke2000's picture

Who would want t bring kids to a country that was handed over to the muslim savages, I do not blame the people of not having children.