Norway’s sovereign wealth fund swelled in 2021

Norway's sovereign wealth fund, the world's biggest, grew even larger last year as it earned close to a whopping $180 billion thanks to its investments in US stocks, officials said Thursday.

An oil rig in Norwegian waters.
The Norwegian sovereign wealth fund swelled last year. Pictured is a oil rig in Norwegian waters. Photo by Jan-Rune Smenes Reite from Pexels

The gains of almost 1.6 trillion Norwegian kroner ($177 billion, 158 billion euros) represented a return of 14.5 percent. The fund — which the country funnels its oil revenues into — ended the year with a colossal total value of 12.3 trillion kroner.

Central Bank Governor Oystein Olsen described it as “a quite rewarding year”.

This is the fourth best annual percentage return in the history of the fund, which was set up in the 1990s, and the second best in absolute terms.

But the central Norges Bank, which manages the fund, cautioned that such results could not be expected in the future.

“We have to be prepared for downturns,” said Trond Grande, deputy chief executive for Norges Bank investment management.

READ ALSO: Why is Norway such a wealthy nation?

Stocks, which accounted for 72 percent of the total portfolio at the end of December, gained 20.8 percent, driven in particular by the US and the energy, finance and technology sectors.

Microsoft, Alphabet (Google’s parent company) and Apple were the top three companies contributing to the fund, with gains of 78 billion, 64 billion and 61 billion kroner respectively in 2021. The fund has stakes in more than 9,000 companies.

Stock markets have fallen sharply since the beginning of the year in the face of inflationary pressures and the prospect of rising interest rates, coupled with uncertainty tied to the standoff between NATO and Russia over Ukraine.

The fund’s bond investments, which account for 25.4 percent of assets, suffered a negative return of 1.9 percent as interest rates remained low in 2021. Real estate investments, accounting for 2.5 percent of the portfolio, gained 13.6 percent, while unlisted renewable energy projects, the fourth asset class although only marginal, posted a return of 4.2 percent.

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.


What Norway’s double interest rate hike means for your finances 

Norway's central bank raised the key interest rate by 0.5 percentage points for the first time in 20 years, and experts have warned there will be several knock-ons for households. 

What Norway's double interest rate hike means for your finances 

Earlier this week, Norway’s central bank, Norges Bank, raised the key policy rate from 0.75 percent to 1.25 percent. 

“We understand that some are concerned when we announce such a rapid rise in interest rates. For some, it will be demanding, but most households have the finances to pay the loan with a slightly higher interest rate,” governor of the bank, Ida Wolden Bache, told public broadcaster NRK

Norges Bank also announced that the key interest rate would be raised again in August to 1.5 percent. The bank said it was raising interest rates to curb high inflation. 

“The committee’s assessment is that there is a need for a clearly higher interest rate to stabilize inflation around the target,” a press release announcing the rise stated. 

Inflation in Norway rose to its highest level since 1988 last month, figures from Statistics Norway show. The Consumer Price Index for May showed that prices were 5.7 percent higher than they were a year ago.  

READ MORE: Inflation in Norway reaches its highest level since 1988

By next summer, Norges Bank expects the key policy rate to be raised to around 3 percent. 

The Forecast Centre, which offers financial analysis, told newswire NTB that the rapid rate rises would lose to an uncertain time for households. 

“The most vulnerable households will enter a period of considerable uncertainty. There is no way around it,” chief economist Nerja Macic told NTB. 

There are around 436,000 financially vulnerable households in Norway, according to figures from the national stats agency Statistics Norway. A vulnerable household has debts three times higher than its income and less than 100,000 kroner in the bank. 

Norway’s Real Estate Association said that young homeowners and first-time buyers could also struggle due to the interest rate rises. 

“Many have incurred a very high debt ratio in anticipation of low-interest rates for many years. With today’s interest rate forecast, many must prepare for significantly higher interest costs than they were predicted when they received their first mortgage,” Carl O. Giving, CEO of the Real Estate Association, told newswire NTB. 

“At the same time, the threshold to the housing market will be very high for many first-time buyers who are allowed to borrow less when interest rates rise,” he added. 

A key interest rate of 1.25 percent means yearly repayments of 12,500 kroner per million of debt. For example, for million kroner of debt at an interest rate of 1.25 percent means annual repayments of around 50,000 kroner per year. 

This week’s rate rise meant repayments would rise by 5,000 kroner per year for every million one owes, in theory at least. 

However, banks typically lend at above the key interest rate, meaning payments will be higher than the current 1.25 percent key policy rate.