A Review of the Nigerian Energy Industry

Norway’s $724 bn oil fund to encounter volatility years ahead

Norway oil fund15 April 2013, OSLO – The value of Norway’s $724 billion oil fund is likely to fluctuate more in the coming years, said Minister of Finance Sigbjorn Johnsen Friday, adding that he still expected an average annual yield of 4%.

“I think 4% is a realistic target,” Mr. Johnsen told Dow Jones Newswires after presenting the government’s annual review of the oil fund’s performance and strategies.

The fund returned 13.4% on its investments in bonds, stocks and real estate in 2012, its second best year ever. But Mr. Johnsen said the Norwegian people should expect more volatility in the fund’s value in the years to come.

“The bigger the fund becomes, the bigger fluctuations we have to expect,” he said.

The Norwegian government has a self-imposed fiscal rule that limits annual spending to a maximum of 4% of the fund’s market value, which is equal to the fund’s expected returns. From the beginning of 1997 to the end of 2012, the fund yielded on average 3.2% a year, which was not far from the level targeted, Mr. Johnsen said.

“That’s a good level, seen in the bigger context,” he told reporters. The government expects to spend about 3.3% of the fund’s value in 2013.

Oil fund chief executive Yngve Slyngstad has also warned of increased volatility. If the fund experienced another year like 2008, its market value could be reduced by as much as NOK1 trillion ($174 billion) from one year to the next, he told a recent parliament hearing.

“The estimated 4% real yield is uncertain, also for long-term horizons,” Mr. Slyngstad said, adding that the fund’s market value would largely be determined by equity markets in the coming years, as bonds were expected to deliver low yields for a long time.

Norway’s sovereign wealth fund, officially named the Government Pension Fund Global, or GPFG, is managed by the Norges Bank Investment Management, which is under the control of the country’s central bank. The Ministry of Finance sets the fund’s overall guidelines.

The GPFG is the world’s largest sovereign wealth fund, according to the Sovereign Wealth Fund Institute. At the end of 2012, the fund’s average holding in the world’s listed companies was 1.2%, up from 1.1% a year earlier.

The government expects the fund’s market value to reach NOK4,280 billion at the end of 2013, and then NOK6,262 billion by 2020.

*Kjetil Malkenes Hovland, Dow Jones News Wires.

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