The $US 324 billion Government Pension Fund – Global (NBIM) of Norway pushed its allocation to equities beyond 50 per cent in the course of Q1 2009 at the expense of its fixed income portfolio, maintaining a strategic bent towards a higher exposure to growth assets.
In the northern summer of 2007, the fund decided to steadily build up its equity exposure from 40 to 60 per cent. At the end of Q1 2009, its allocation to equities stood at 52.6 per cent, which included an average holding of 0.86 per cent across global markets, and 1.58 per cent in European markets, according to the latest NBIM Quarterly report.
The fund returned minus 4.81 per cent for the first quarter of 2009. Relative to its benchmark portfolio, which is defined by the Norway’s Ministry of Finance, it produced an excess return of minus 0.35 per cent.
It attributed the weak results to its fixed income portfolio, which held bonds in the core and supplementary capital of financial institutions that were bought before the financial crisis broke out and became illiquid as it intensified. The portfolio produced a negative excess return of 0.92 per cent, while its equities book returned 0.30 per cent.
A stronger Norwegian krone also led to a loss of $US 27 billion during the quarter.
Portions of the NBIM’s equity and fixed income portfolios are outsourced to external managers. The proportion of externally-managed assets rose by $US 6.7 billion to $US 54.8 billion during the quarter.
One result of parcelling out this capital as mandates was a large increase in the cumulative fees paid to external managers, up from $US 11.7 million early last year to $US 65.1 million at the end of Q1 2009, including an increase in performance fees of $US 43.1 million.
The fund stated these fee payments reflected the accrual of costs only, and not the size of the fees paid. Meantime, many new mandates were awarded in 2008, and a number of its equity managers notched good numbers in Q1.
During this period, the volume of inflows into the fund was the lowest since 2004, at $US 6.9 billion.