Norway’s sovereign wealth fund to reduce European exposure

March 30, 2012 at 17:45

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Norway’s $610 billion sovereign wealth fund, Europe’s biggest equity investor, plans to sharply reduce its European exposure while raising investments in emerging markets and Asia-Pacific, the finance ministry said on Friday.

Of its entire bond, fixed income and real estate portfolio, European investments will be “gradually” reduced to 41 percent from 54 percent, while Asia-Pacific’s share will rise to 19 percent from 11 percent, Finance Minister Sigbjoern Johnsen told a news conference.

“We’re reducing our European exposure because we see that economic development in the global economy is changing and this should also be reflected in our investment strategy,” Johnsen said. “Most likely we’ll have to sell some assets in Europe.”

As a result, the share of emerging markets in the fund’s total portfolio will rise to 10 percent from 6 percent and the share of the Americas and Africa will rise to 40 percent from 35 percent.

“It is just not possible to say how long this will take … it should be gradual and taking into account market circumstances,” ministry State Secretary Hilde Singsaas said.

Johnsen added that a previous rebalancing took two years.

The fund, which now holds over $120,000 per man, woman, and child in Norway, is forecast to grow to 5.86 trillion crowns or $1.03 trillion by the start of 2020 as it collect the country’s lucrative oil and gas revenues.

It had a return on investment of 4.4 percent in the fourth quarter of 2011 and -2.5 percent in all of 2011 as it remained heavily exposed to Europe amid its market turbulence.

Shares from developed Europe, now making up 47 percent of the Fund’s equity portfolio, will be reduced to 38 percent. In the fixed-income portfolio, developed Europe’s weight will be cut to 40 percent from 60 percent.

In fixed income, developed Asia-Pacific’s share will be lifted to 11 percent from 5 percent while its share of the equity portfolio will rise to 15 percent from 11 percent, the finance ministry said.