Norway’s sovereign wealth fund sold all its Irish and Portuguese government bonds after rejecting the Greek debt swap and warned that Europe faces considerable challenges.
Norway’s $610 billion Government Pension Fund Global returned 7.1 per cent, or 234 billion kroner ($41 billion), as measured by a basket of currencies, in the first quarter.
Its equity holdings gained 11 per cent while its fixed-income investments rose 1.6 per cent. The fund, which voted against Greece's debt swap this year because it disagreed with being subordinated to the European Central Bank, also said it reduced debt holdings in Italy and Spain amid a broader strategy to cut investments in Europe.
The fund added government bonds issued in emerging markets such as Brazil, Mexico and India.
"Predictability is important for a long-term investor and the euro area faces considerable structural and monetary challenges," Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, said in a statement.
Stocks jumped globally in the quarter after the European Central Bank stepped in with more than $1 trillion in three-year loans to the region's banks. The rally was tempered toward the end after Spain announced in March it would miss a deficit target and as austerity measures dragged euro region economies into a recession and boosted unemployment to a 15-year high.
Greece pushed through the biggest sovereign debt restructuring in history in the period, with private investors writing off more than €100 billion of debt. That decision spurred European finance ministers to approve a second bailout package for the nation of €130 billion.
The Norwegian fund said today that it held 1.3 billion kroner in Greek bonds before the debt swap. Its holdings in Italian government debt fell to 26.6 billion kroner from 33 billion kroner at the end of 2011, while Spanish debt declined to 15.6 billion kroner from 18 billion kroner.
It holding of euro-denominated government bonds declined to 39 per cent of the fund at the end of March from 43 per cent at the end of last year.
Norway's government deposited 60 billion kroner of oil revenue into the fund in the quarter. The fund was set up in 1990 as a fiscal policy tool to support long-term management of Norway’s petroleum revenue. It invests outside Norway to avoid stoking domestic inflation.
Bloomberg
