Norway Wealth Fund CEO Warns Days of High Returns Are Over

(Bloomberg) -- Norway’s $1.3 trillion sovereign wealth fund, the world’s biggest, is reaching the pinnacle of the returns that can be expected, according to Chief Executive Officer Nicolai Tangen.

A return of 14.5% last year, equivalent to about $176 billion, was the highest in three years and just beat the fund’s own benchmark. The fund grew mainly thanks to gains in technology and banking stocks on record pandemic stimulus. Speaking to journalists in Oslo after the announcement, Tangen warned an era of lower returns is ahead.

“This fantastic rise we’ve seen the last 25 years won’t continue,” he said on Thursday. “Interest rates are record low and shares are record high, so from here on out we’re going to see more rough weather.”

Broaching the current market turbulence, Tangen is on the fence as to whether a bear market is on the cards as central banks begin to withdraw the stimulus that’s buoyed markets.

“It’s correct that so far this year we’ve seen volatility, and technology shares in particular have been weak,” Tangen said. “Whether this is the start of a larger decline, we don’t know, or if we’ll get a recovery here, we’re very uncertain about that.”

Created in the 1990s to invest Norway’s oil and gas revenues abroad, the fund delved into renewable-energy infrastructure for the first time last year, an investment that returned 4.2% in 2021. The move represents a landmark expansion of the fund’s asset classes, which had been limited to stocks, bonds and real estate.

Total return was 14.5% in 2021, 74 basis points higher than that of the benchmark against which the fund measures itself. The biggest returns were from equities, at 20.8%, led by Microsoft Corp. and Alphabet Inc., and the fund lost 1.9% on its fixed-income investments. Its unlisted real estate holdings gained 13.6%.

The Norwegian fund is among the first to report 2021 figures, but its returns exceeded other sovereign wealth funds that have come out with their numbers: the Hong Kong Exchange Fund with 3.6% and the Azeri State Oil Fund with 3.4%. The Hong Kong fund mostly exists to protect its peg to the dollar, and the Azeri fund is mostly invested in fixed income, explaining its performance.

After achieving an average rate of return of 6% for a quarter century, the Norwegian fund -- known as Norges Bank Investment Management -- is preparing for “a decade of lower returns,” Tangen was cited as saying by Germany’s Frankfurter Allgemeine Zeitung in an interview late last month. 

The fund, which has a portfolio of about 9,000 stocks, is the world’s biggest owner of publicly traded companies.

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