NORWAY - Norway's Government Pension Fund Global should reduce its weighting to Europe and will consider changes to its fixed income portfolio, finance minister Sigbjorn Johnsen said in a report to parliament today.
In his annual report on the management of the $525bn sovereign wealth fund, Johnsen (pictured) said the fund should reduce its overall allocation to Europe in favour of other international markets, including emerging markets.
Just over half of the fund's assets are currently in Europe. The heavy weighting was meant to protect the fund against currency fluctuations, but the minister found currency risk within the portfolio was "relatively limited" and such a heavy concentration in the region is not warranted.
"Global securities markets and production capacity are increasingly located in other parts of the world other than Europe," wrote Johnsen. He said future allocations outside Europe will come from contributions into the fund, instead of from selling off existing holdings.
More details quantifying the potential shifts in allocations were not provided.
Separately, the minister outlined possible changes to the fund's fixed income portfolio, which makes up some 35%, or $187.25bn, of the overall allocation.
The Ministry will consider over the next year whether to take a core-satellite approach to the portfolio which would allow the fund to more easily invest in fixed income assets not currently included in the portfolio.
Johnsen said the Ministry will also consider introducing fixed weights to the fixed income portfolio that would target 70% government bonds and 30% fixed income. The move was originally recommended by Norges Bank, which overseas the management of the fund's assets.
The proposed changes to the portfolio comes on the heels of an overhaul of its investment ranks, with Norges Bank dividing the chief investment officer role into three positions.
Petter Johnsen was made CIO for equities, Karsten Kallevig is CIO for real estate and chief executive officer Yngve Slyngstad also serves as CIO for allocation. The three replace Bengt Enge, the former CIO of the NOK3trn ($545bn) fund, who stepped down in March.
The Pension Fund returned 9.6% in 2010, beating its target benchmark by 1.1 percentage points.