World’s Largest Sovereign Wealth Fund Returns Record Capital

The world’s largest sovereign wealth fund in Norway returned record capital in the first half of the year, a strong turnaround from the same period of 2016.

The 8.02 trillion kroner ($1 trillion) Government Pension Fund Global, run by Norges Bank Investment Management, produced a 7.34 percent gain in the first six months of 2017, according to an investment report. That compares with a 3.33 percent loss in the first half of 2016.

The performance resulted in an unprecedented gain of 499 billion kroner this year through June, according to a statement Tuesday from Trond Grande, deputy chief executive officer of Norges Bank Investment Management. The investment pool serves essentially as an endowment for Norwegian citizens.

The results were driven by strong gains in the fund’s equity holdings, particularly health-care stocks, and “healthy growth” in the global economy, according to the fund’s second-quarter report.

“The stock markets have performed particularly well so far this year,” Grande said in Tuesday’s statement on the fund’s performance.

Norway’s sovereign wealth fund — known as the Oil Fund because of its original mandate managing assets for the country’s petroleum industry — is 65.1 percent invested in equities, 32.4 percent in fixed income and 2.5 percent in unlisted real estate.

The fund produced a 2.6 return in the second quarter, outperforming its benchmark index by 0.3 percent, according to Tuesday's statement. The gains equated to 202 billion kroner.

Health-care stocks were the top performers with a 5.7 percent gain in the second quarter and a “substantial return” in the first half of the year, according to the fund’s quarterly report.

After a strong first half compared to last year’s results, Grande cautioned that investors “cannot expect such returns in the future.” And despite the fund’s record return of capital — which is primarily due to the large size of the fund — performance has lagged peers.

A report this month by global think-tank Re-Define said Norway’s sovereign wealth fund “underperforms its peer group in the returns it generates.” It also said the fund doesn’t follow its own stringent environment, social and governance standards.

The Government Pension Fund Global monitors ESG investments as part of its risk management while encouraging stakeholders like non-governmental organizations to give their views on the matter, according to a spokesman for the fund. He said its members held a meeting with Norwegian NGOs during the second quarter to ensure good dialogue on responsible investment.

“Consideration of environmental, social and governance related risk factors may result in divestments from companies where we see elevated long-term risks,” the spokesman said. “In total, we have divested from 210 companies on these considerations.”