Norway’s Government Pension Fund Global, the largest sovereign wealth fund globally, on Tuesday announced a record-breaking profit of 2.22 trillion Norwegian kronor (approximately 196 billion euro) for 2023. This achievement was primarily driven by substantial returns from investments in technology stocks.
The results marked a significant turnaround from its 1.64 trillion kronor (about 140 billion euro) loss in 2022, primarily due to a downturn in tech stocks.
Nicolai Tangen, CEO of Norges Bank Investment Management, expressed satisfaction with the fund’s performance at a press conference, highlighting the unpredicted success of 2023. Tech stocks, he noted, were the major contributor, accounting for half of the fund’s return. This surge was influenced by significant advancements in artificial intelligence, an improved economic outlook, and anticipations of declining interest rates.
Real estate assets remain uncertain
The fund’s stellar performance was achieved despite a negative return of 12 percent on its unlisted private real estate investment, for which it also uses Luxembourg-domiciled alternative investment vehicles. Its listed real estate investments yielded 17 percent last year, bringing the total 2023 return for its real estate investments to 0 percent.
“The listed portfolio actually provided us with flexibility to react to market events and adjust the portfolio during the year,” explained Mie Caroline Holsted, the firm’s CIO for real assets, during the press conference. “So at year end, only 10% of the portfolio was actually invested in the troubled office sector, while the rest was invested in residential in certain parts of the residential and retail sectors. And those were all relative winners last year.”
The value of the fund’s private real estate portfolio has declined for six consecutive quarters and now is down 22 percent from its 2022 peak. “Our portfolio has been well positioned, but not at all a view towards the market backdrop and the structural changes going on in the office sector in particular than in the US,” Holsted said, adding that a positive trend is visible in most rental markets except for the US where vacancies are increasing.
“As we all know, there is a lot of uncertainty out there and it is hard to predict when this falling trend will turn,” she said.
Novo Nordisk as the European star
The fund’s most notable investments included major U.S. technology companies such as Microsoft, Apple, and Nvidia, along with a significant stake in Danish pharmaceutical company Novo Nordisk, ranked eighth in terms of value. Novo Nordisk gained prominence due to its diabetes drug Ozempic, which gained traction as an obesity treatment.
The fund’s total return on investment in 2023 was 16.1 percent, slightly underperforming its benchmark index by 0.18 percentage points. Despite high inflation and geopolitical uncertainties, including tensions in the Red Sea and the ongoing war in Gaza, the fund’s total value increased by 16 percent to 15.8 trillion kroner, equating to approximately €273,000 for every Norwegian citizen.
The largest gains were attributed to what Tangen referred to as the “Magnificent Seven” of tech stocks: Apple, Amazon, Alphabet (Google’s owner), Meta (Facebook and Instagram owner), Microsoft, Nvidia, and Tesla. The fund also saw significant returns from its stake in Novo Nordisk.
71% equities
Fueled by revenue from Norway’s state-owned oil and gas companies, the fund aims to finance the country’s extensive welfare state. At the end of 2023, approximately 71 percent of the fund’s portfolio was allocated to equities, encompassing stakes in 8,859 companies globally, representing about 1.5 percent of all listed stocks. The fund reported a 21.3 percent return on its equity investments, while its tech stock investments grew to account for 22.3 percent of its total equity investments, up from 14.5 percent in 2019.
The fund’s bond holdings yielded a 6.1 percent return, but real estate investments declined by 12.4 percent amid rising interest rates. Investments in unlisted renewable energy projects generated a 3.7 percent return.
In 2023, the Norwegian state’s inflows into the fund amounted to 711 billion kronor, the second-largest in the fund’s history, slightly below the record set in 2022 of nearly 1.1 trillion kronor. The decrease in the value of the Norwegian kroner contributed to an increase in the fund’s value of 409 billion kronor.
Tangen warned of the challenges ahead, emphasising the impact of geopolitical risks, including the Middle East conflict and US-China trade tensions. He stressed the unpredictability of geopolitical situations, which could potentially affect future performance.
Market value of €1,394 billion
(This article has been updated to correct the amounts in euro.)