State-owned funds are diversifying their investments
THE WORLD’s largest sovereign-wealth fund is now a little bit smaller. Last week the Government Pension Fund of Norway announced it had lost 6.1% of its value in 2018—its worst year since the financial crisis of 2008, and its first calendar-year loss since 2011. The decline cut its total asset base below the benchmark figure of $1trn, which it first reached in 2017.
Private asset managers can be forced to change their strategies after periods of disappointing performance, because return-chasing clients are prone to redeem their money unless the fund manager takes a different tack. In contrast, Norway’s portfolio managers are free to think long term. They are sticking to a bet on Britain, the country with the third-largest share of the fund’s assets, despite the myriad risks posed by Britain’s departure from the EU.
Most other sovereign wealth funds are secretive about their asset allocation. The other big exception to this rule, Singapore’s national savings fund, known as GIC, slightly reduced its exposure to equities in the year to March 2018. Nonetheless the long-term trend has been for sovereign funds to shift out of risk-free assets such as government bonds and to take bigger bets.
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