Norway Wealth Fund Assets Surge To Over $1 Trillion On Massive 70% Allocation To Equities

Last December we joked that the Norwegian sovereign wealth fund had responded to sinking returns and withdrawals required to fund budget deficits by allocating another $130 billion in assets to what appeared to be an already massively overpriced equity bubble in return for an extra 40bps of “expected average annual real returns.” (see: Norway Buying $130 Billion In Global Equities As Sovereign Wealth Fund Continues To Bleed Cash). The extra equity purchases pushed the fund’s total equity allocation to a staggering 70% of their $860 billion in assets under management.
After being forced to withdraw at least $15 billion to fund 2017 budget deficits, the $860 billion Norwegian sovereign wealth fund has announced that it will change it’s portfolio allocations to try to make up the difference. The change will result in 75% of the fund’s capital being allocated to global equities, up from the current 60%. Sure, because funneling another $130 billion to the global equity bubble is just the prudent thing to do for an extra 40bps of “expected average annual real returns.”
The central bank’s board, which oversees the fund, on Thursday recommended an increase in the equity share to 70 percent from 60 percent. That will raise the expected average annual real return to 2.5 percent over 10 years and to 3.5 percent over 30 years, compared with 2.1 percent and 2.6 percent, respectively, under the current setup.
The world’s largest sovereign wealth fund said that it expects an annual return of only 0.25 percent on bonds over the next decade and that the expected ‘equity risk premium,’ or return on stocks over government bonds, will be just 3 percentage points in a cautious estimate.

This post was published at Zero Hedge on Sep 20, 2017.