The head of the world’s biggest sovereign wealth fund has warned investors against complacency and said they face tough years ahead as Norway’s oil fund posted its biggest dollar loss in the first half of 2022.
“Markets don’t go down in a straight line and I’m worried that we could be in for a prolonged period of tough times,” said Nicolai Tangen, the fund’s chief executive, in an interview with the Financial Times. “There is a risk that we haven’t seen the worst yet.”
The effects of reversing monetary stimulus and low interest rates from the 2008 financial crisis to the pandemic are so great that “I’m more in the several years.” [of difficult markets] camp I don’t think this will happen overnight,” he added.
The market rally in July had encouraged some investors, but it was likely to be a false dawn, he said.
“The market has one function, and that’s to try to steal your money every day. The best way the market could steal your money in July was to rally, so that’s what it did,” Tangen said.
The $1.2 trillion fund suffered a 14.4% loss, or the equivalent of $174 billion, in the first half of the year, driven by a selloff in all sectors except energy, he said Wednesday. It had gained 14.5 percent through 2021 as markets soared after economies around the world reopened.
“The fund is now so large that the sums become very large. . . . But we are a long-term investor, so we have to tolerate these kinds of changes,” Tangen said at an earlier news conference. “What was unusual this time is that we lost money in both stocks and bonds.”
Norges Bank Investment Management’s equity portfolio, which manages the fund, was particularly hard hit in the first half, with a 17% loss, while fixed income fell 9.3%. Facebook parent Meta was the main contributor to NBIM’s stock losses in the first half.
The fund’s investments in unlisted real estate generated a gain of 7.1%, but represent only 3% of the fund’s overall portfolio. Its investments in renewable energy infrastructure fell by 13.3%.
Nicolai Tangen: “We are a long-term investor, so we have to tolerate this kind of change” © Fredrik Solstad/Bloomberg
The sovereign wealth fund, which owns the equivalent of 1.5% of all listed companies in the world, had inflows of NKr 356 billion ($36.8 billion) in the first half of 2022, while currency movements they increased the value of the fund by NKr 642 billion. The MSCI All-World index of global stocks is down 14% so far this year. The fund said it had outperformed its own benchmark by 1.14* percentage points.
Tangen had previously warned that a Russian invasion of Ukraine would worsen inflationary problems. In an interview with the FT in January, he was also described as “the team leader for the permanent team” in the debate over how long high inflation could last.
On Wednesday, Tangen reiterated that view. “There is a risk that inflation will be harder to bring down than many think,” he said. “Inflation feeds on itself.”
The oil fund was created in 1996 to invest revenues from Norway’s oil and gas industry and is housed in its central bank. It is a quasi-index fund, with its overall investment mandate set by the Ministry of Finance, while major changes to the way the fund is invested must be approved by parliament.
*This has been corrected from 1.14 basis points