Norway wealth fund sees turbulent times ahead for financial markets

Oslo

NORWAY'S US$1.15 trillion wealth fund expects more turmoil in financial markets as the world continues to fight the Covid-19 pandemic, a top fund official said on Tuesday, after it posted a 188-billion-krone loss (S$29.1 billion) in the first half of 2020.

The pandemic is not under control "in any shape or form" and remains the biggest issue for investors, said deputy CEO Trond Grande, after presenting the half-year results of the world's largest sovereign wealth fund.

The fund lost US$153 billion between January and March as markets plunged, its worst quarter ever, but earned back US$131 billion from April to the end of June amid a rebound, its best quarter on record.

"We could be in for some turbulence this fall as things unfold and whether or not the coronavirus pandemic recedes, or gains some force," Mr Grande said.

"We have already seen some sort of V-shaped recovery in the financial markets. I think there is a slight disconnect between the real economy and the financial markets," he said, noting that government support for economies could only be sustained for so long.

The full fallout for some sectors, such as leisure and travel, has yet to be seen, Mr Grande said.

Founded in 1996, the fund holds stakes in around 9,200 companies globally, owning 1.5 per cent of all listed stocks. It also invests in bonds and real estate. Its overall value is equivalent to about US$214,000 for every man, woman and child in Norway.

The overall portfolio had a negative return of 3.4 per cent in the first half of the year, with declines of 6.8 per cent for equities and 1.6 per cent for unlisted real estate, while the value of fixed-income holdings rose 5.1 per cent as interest rates plunged.

The overall return was 11 basis points lower than the return on the fund's benchmark index.

Oil companies were the weakest performers, with their stocks declining by 33.1 per cent due to the slide in crude prices, while technology firms had the strongest development, gaining 14.2 per cent.

At the company level, technology firms Amazon, Microsoft and Apple contributed the most to the performance, while oil firm Shell and banks HSBC and JP Morgan Chase performed the worst.

The world's biggest wealth fund also said it's eager to get clarity on who will lead it, after a botched recruitment process to find a new chief executive triggered a political storm that's still playing out.

"It's now been almost a year since Yngve Slyngstad announced his resignation" Mr Grande said by phone after a press conference in Oslo. "Everyone's looking forward to getting clarification and a new leader in place." "This situation has come on top of the challenging handling of a pandemic," he said.

Mr Grande stood in for Mr Slyngstad on Tuesday, after the outgoing CEO skipped what would have been his final set of results after 12 years at the helm.

The giant investment vehicle has landed at the centre of a political uproar after a London based hedge-fund manager, Nicolai Tangen, was picked as its new CEO.

The central bank, which manages the fund, has met fierce criticism for its handling of Mr Tangen's recruitment. Its watchdog says the bank failed to eliminate potential conflicts of interest relating to Mr Tangen's personal wealth and to adequately address his firm's use of tax havens. Also, Mr Tangen never appeared on an official list of candidates.

Mr Slyngstad was himself briefly tainted by the drama after it emerged that he'd accepted a luxury flight paid for by Mr Tangen. An internal probe found Mr Slyngstad didn't breach compliance guidelines, while acknowledging a review of the fund's standards was needed. Mr Slyngstad wasn't involved in his successor's selection. REUTERS/BLOOMBERG