World’s largest wealth fund posts $30bn loss as rising rates hit bonds

Norway's sovereign wealth fund, the world's largest with assets of around €2.1 trillion, reported an investment loss of 278 billion kroner (€26.4 billion) on Thursday, as it was weighed down by higher interest rates.

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Norges Bank Investment Management (NBIM), which manages the fund, reported a negative return of 3.5% on its fixed income investments, which account for just over one quarter of its portfolio. Around 70% of these investments are in government bonds.

The third quarter saw a global bond sell-off, with government bond yields rising to levels not seen since the financial crisis, amid growing concerns over mounting government debt in the US and the EU.

This was accompanied by central banks, including the US Federal Reserve and the European Central Bank, raising key interest rates as inflation rose in the US and the eurozone.

"The fund’s return was close to flat, ending slightly negative as rising interest rates led to weaker results on our fixed-income investments," the fund's deputy CEO Trond Grande said in a statement.

Rising market interest rates generally push down the price of existing bonds, as newly issued bonds offer more attractive rates.

The fund's overall investment return was −0.5%, while its investments in company shares yielded a gain of 0.5%, with large differences between sectors.

"Energy companies rose the most, while interest-rate-sensitive sectors such as utilities and real estate fell,” said Grande.

At the end of September, the fund was worth 22,014 billion kroner (€2.09 trillion), with 72.1% invested in shares and 25.8% in bonds. The rest was held in unlisted real estate and renewable energy infrastructure.

Real estate investments brought a 0.4% return, and unlisted renewable energy infrastructure investments yielded 7.5%.

Including currency movements and new money added, the fund’s total value fell by 670 billion kroner (€63.6 billion) during the quarter.