Norway’s Sovereign Wealth Fund Sees Record Profit, Warns of Unsustainable Returns
A Tech-Driven Windfall
Norway’s $1.8 trillion sovereign wealth fund, the world’s largest, has reported a staggering annual profit of 2.51 trillion crowns ($222 billion), largely driven by the tech rally of 2024. This marks the second consecutive year of record profits, surpassing the 2.2 trillion Norwegian crowns earned in 2023.
CEO Sounds a Note of Caution
Nicolai Tangen, CEO of Norges Bank Investment Management, the fund’s operator, attributed the impressive returns to massive gains from technology stocks, particularly Nvidia. However, he warned that such strong returns are unlikely to persist. “I want to caution that this will not last forever,” Tangen emphasized.
Risks and Challenges Ahead
The fund’s stress tests revealed the potential risks posed by an AI stock correction, a debt crisis, or geopolitical risk. Scenarios showed that the fund could lose up to 18%, 40%, or 35% of its value in each of these scenarios, with even greater losses if they were to occur simultaneously. Despite these risks, the fund is not taking immediate action to reduce its dependence on tech stocks.
Diversification and Asset Allocation
The fund, which invests the Norwegian state’s revenues from oil and gas production, owns an average of 1.5% of all listed stocks worldwide. Its portfolio also includes bonds, real estate, and renewable energy assets. In 2024, the fund’s return on investment was 13%, slightly lower than its benchmark index. Inflows from the Norwegian state totaled 402 billion crowns, short of the record set in 2022.
Breakdown of Returns
The fund’s return on equity investments was 18% last year, while fixed income investments gained 1%. Unlisted real estate returned a negative 1%, and unlisted renewable energy infrastructure had a return of minus 10%. At the end of 2024, 71.4% of the fund’s assets were allocated to equities, up from 70.9% in 2023.
A Call for Prudence
As the fund celebrates its record profit, Tangen’s warning serves as a reminder to remain cautious in the face of uncertainty. With the tech sector’s dominance in the fund’s portfolio, it remains to be seen how Norway’s sovereign wealth fund will navigate the challenges ahead.
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