Commuters in Oslo, Norway.
Government Pension Fund Global, Oslo, achieved a record year of growth in 2023 driven by equities investments, but underperformed its benchmark by 18 basis points.
The sovereign wealth fund, run by in-house manager Norges Bank Investment Management, returned 16.1% last year, equivalent to 2.22 trillion Norwegian kroner ($218 billion).
"It's fair to say that 2023 ended up a lot better than we expected a year ago," said Nicolai Tangen, CEO at NBIM, in a news conference on Jan. 30. He said the investment return followed "a weak prior year."
GPFG returned -14% in 2022, equivalent to a loss of 1.64 trillion kroner.
It was a "record year for the fund" in terms of its value, added deputy CEO Trond Grande in the same conference. Assets grew 26.8% to 15.77 trillion.
Returns were driven by the fund's equity investments, which accounted for 70.9% of the portfolio and gained 21.3% in 2023. That compared with a -15.3% return in 2022.
Equities performance was driven by technology companies, with healthcare and other sectors also performing well, executives said.
Fixed income, accounting for 27.1% of the fund, returned 6.1% in 2023, up from a 12.1% loss in 2022. The fund's 0.1% allocation to renewable energy infrastructure gained 3.7%, compared with a 5.1% return in 2022.
However, a 1.9% allocation to private real estate was a drag on performance, with a -12.4% return. In 2022, private real estate gained 0.1%.
Grande said real estate investments were "hit both by rising interest rates and a falling demand for the types of real estate investments that we have had."
However, "one should be careful, of course, of interpreting one-year results for such long-term asset classes," he added.
GPFG also underperformed its benchmark index — set by the Ministry of Finance — by 18 basis points in 2023, compared with an outperformance of 87 basis points in 2022.
The kroner also depreciated vs. several main currencies, and currency effects increased the fund's value by 409 billion kroner. In 2022, currency effects added 642 billion kroner.
Looking ahead, executives warned that similar returns should not be expected looking ahead. Grande said the manager expects the fund to "fluctuate."
Executives conduct stress tests on the portfolio, examining three scenarios — two macroeconomic and one geopolitical — with "all indicating that if they were to come to fruition, the fund would fall roughly 30% in value," Grande said.
