Norway's $950 billion sovereign wealth fund – the world's biggest – is about to make history as it prepares to liquidate assets to cover government withdrawals.
The crisis triggered by the coronavirus pandemic is playing out very differently for the giant investor than the 2008 great recession. Back then, Norway's wealth fund used the global sell-off to buy up cheap stocks. This time, the fund will probably need to offload a sizable chunk of its bond portfolio.
Norway faces its worst economic shock in half a century. With petroleum revenue sharply down, the government has much less income to use on crisis measures. That means it will need to withdraw historic sums from its wealth fund to make ends meet.
While past withdrawals were easily covered by the fund's cash flow, that's no longer the case. Companies it invests in are now suspending dividends en masse, in response to the crisis.
CEO Yngve Slyngstad has already said cash flow this year will be "significantly lower" than previously expected. In 2019, the fund got 243 billion Norwegian kroner ($23 billion). Meanwhile, calculations by Bloomberg News show that Norway's government will need to pull at least 266 billion kroner from the fund this year, assuming oil prices stay at current levels through 2020.
The situation is quickly deteriorating, and the numbers remain subject to change. A week ago, it looked like government withdrawals would reach just 150 billion kroner, or about $14 billion.