The world’s largest sovereign wealth fund loses $174 billion in the first half, cites inflation and war in Europe

Norway’s sovereign wealth fund, the largest in the world, had a loss of 1.68 trillion Norwegian kroner ($174 billion) in the first half of 2022, as stock markets more broadly saw a tumultuous six months.

The $1.3 trillion fund returned a negative 14.4% during the period, as stocks and bonds reacted violently to global recession fears and skyrocketing inflation. But the fund’s return was 1.14 percentage points better than the return of the benchmark index, Norges Bank, the country’s central bank, said Wednesday, equivalent to 156 billion kroner.

“The market has been characterised by rising interest rates, high inflation, and war in Europe. Equity investments are down with as much as 17 percent. Technology stocks have done particularly poorly with a return of -28 percent,” the CEO of Norges Bank Investment Management, Nicolai Tangen, said in a release.

The fund’s return on equity investments slipped 17%, while fixed income investments and unlisted renewable energy infrastructure were down 9.3% and 13.3%, respectively. 

Norway’s vast North Sea oil and gas reserves are the bedrock of the fund’s wealth. Energy was the only sector to not see negative returns after the fund made huge investments in wind power in recent years.

“In the first half of the year, the energy sector returned 13 percent. We have seen sharp price increases for oil, gas, and refined products,” Tangen added.

NBIM’s (Norges Bank Investment Management) performance is “symptomatic” of a larger trend across most major investment funds, Economist Intelligence Unit analyst Matthew Oxenford told CNBC.

“The first half of 2022 saw significant upheaval in financial markets globally, and most diversified funds have seen declines in their value,” Oxenford said.

“Globally, much of this decline was driven by aggressive monetary tightening by central banks, which led to a sharp decline in investment in fast-growing firms in high-growth sectors such as tech (with Meta being the largest single source of loss in NBIM’s portfolio) as the return on safer investments increased and the global pool of high-risk investment shrinks,” he said.

The loss coincides with the U.S. stock market experiencing its worst first half since the 1970s.

The fund will make it out of the other side of its financial straits though, Oxenford said.

“Given that NBIM is highly diversified, and pursuing a longer-term investment strategy, it is likely to weather this storm, although the exceptionally high growth rates we’ve seen in 2020 and 2021 are unlikely to return as global central bank interest rates aren’t likely to return to the pandemic-era near-zero levels any time soon,” he said.

Inflation, interest rate hikes and war in Europe seriously dented the major U.S. indexes, with the Dow Jones Industrial Average losing more than 15% in the first six months of the year, the S&P 500 down over 20% and the Nasdaq Composite falling almost 30%.

Correction: Norway’s sovereign wealth fund had a loss of 1.68 trillion Norwegian kroner in the first half of 2022. An earlier version misstated the figure. The fund’s return was 1.14 percentage points better than the return of the benchmark index. An earlier version mischaracterized the figure.