European shocks strike Norway fund

The world’s second largest sovereign wealth fund, Norway’s Government Pension Fund Global, has experienced a material effect of the European sovereign debt challenges, a region where it holds more than half its equity holdings, and the BP oil spill.The $461 billion fund returned -5.4 per cent, the equivalent of a 155 billion kroner ($16 billion) loss, in the second quarter of 2010, pulled down by an overall decline in global equity markets, but particularly the turmoil in European markets.

Chief executive of Norges Bank Investment Management, Yngve Slyngstad, said the decline was largely driven by concern over high sovereign debt in some European countries, funding challenges for banks and fears of a new economic slowdown.

At the end of the quarter, the fund had an allocation of 59.6 per cent to equities and 40.4 per cent to fixed income, which had second quarter returns of -9.2 per cent and 1 per cent, respectively.

According to a statement, the fund’s single worst performing investment was in oil producer BP. The company’s oil spill in the Gulf of Mexico in April was the largest in US history and BP’s share price halved in the second quarter.

“The spill put the spotlight on safety standards in the oil industry,” says Slyngstad. “NBIM supports the board of BP’s commitment to ensure that safe and reliable operations top the company’s set of priorities. We also seek a wider industry effort that should be led by the largest companies to improve safety and environmental standards.”