Friday, 8 March 2013

More Dismal Returns from NBIM and the Norwegian Oil Fund in 2012

Norges Bank Investment Management (NBIM), the asset management unit of the Norwegian central bank and the manager of the Government Pension Fund Global (the Norwegian oil fund) which invests Norway's wealth from oil abroad, today reported the 2012 results.

Profit on the portfolio before foreign exchange gains and losses was NOK 447.426 billion and with foreign exchange losses of NOK 219.559 billion and a management fee from the Ministry of Finance of NOK 2.193 billion, the profit for 2012 ended on NOK 225.674 billion. This follows a loss of NOK 39.580 billion in 2011 and a profit of NOK 252.416 billion in 2010. Since 2006, the fund now has total foreign exchange losses of NOK 260.94 billion.

Source: NBIM, EcPoFi

Base fees to external managers for the year was NOK 272 million. Adding performance based fees of NOK 307 million, total fees to external managers for the year was NOK 579 million, a significant reduction from the mind boggling NOK 1.83 billion parted with in 2009 (apparently no one in the management team was put in jail for this). Since 2006 NBIM has paid a grand total of about NOK 7.28 billion in management fees to external managers averaging about NOK 1.04 billion a year.

The profit for 2012 might appear impressive, if one is not familiar with the size of the GPFG that is (some refer to it as the largest sovereign wealth fund in the world). At the beginning of 2012, total assets under management was about NOK 3.38 trillion with total assets growing to NOK 3.88 trillion at the end of the year, or about USD 682 billion. This means that return on average assets for the year was a dismal 6.22%. As there is hardly any leverage on the balance sheet, return on equity came in only slightly higher at 6.34%.

Perhaps more worryingly for Norwegians, since 2007 NBIM has delivered an average return on equity of only 2.6% which barely covers the reported increases in the CPI during the period of about 1.93%.

With such dismal returns (partly due to foreign exchange losses) and with developed countries around the world destroying their currencies through aggressive monetary expansion, especially of base money through the monetization of government debt (read the reports here), one can only wonder if the wealth would have been better protected (especially going forward), and delivered better net returns, by simply hoarding the cash generated from oil and storing it in the vaults of Norway's central bank.

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