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BIG YEAR: Norway’s SWF Generates 13.66% for 2017

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Norway Government Pension Fund Global returned 13.66%, or 1,028 billion NOK, in 2017. The wealth fund also hit another milestone, surpassing 8 trillion NOK on April 26, 2017. By September 19, 2017, the wealth fund exceeded US$ 1 trillion in assets. Norway’s GPFG returned 19.44% in equities, buoyed by the U.S. stock market. The wealth fund generated 3.31% in fixed income and 7.52% in unlisted real estate. The overall return on the sovereign fund was 0.7 percentage point higher than the return on the benchmark index. The split of assets for Norway’s GPFG on December 31, 2017 was 66.6% was invested in equities, 2.6% in unlisted real estate and 30.8% in fixed income. At the end of the year, the sovereign investor had 876 billion NOK invested in equities and bonds in emerging markets, compared to 775 billion NOK in 2016.

Norway GPFG – 2017 Annual Equity Returns (International Currency)
U.S. – 14.5%
U.K. – 18.0%
Japan – 20.3%
Germany – 25.5%
France – 24.7%
Switzerland – 18.3%
China – 43.4%
Canada – 10.8%
Australia – 15.2%
South Korea – 36.0%

“The fund’s cumulative return since inception has passed 4,000 billion kroner. One out of four kroner return was generated in 2017, after a very strong year for the fund. Again, our equity investments returned strongest with a return close to 20 percent,” says Yngve Slyngstad, CEO of Norges Bank Investment Management, in a press release.

Norway’s GPFG starts out using the FTSE Global All Cap stock index for its equity investments. The wealth fund then starts adding countries into its internal reference portfolio, in which it picks securities, instruments and markets from a broader universe than used for the strategic benchmark index.

More Interesting Points
In 2017, Norway’s GPFG added Malta to its equity universe.

China vs. India
The sovereign fund had 217 billion NOK invested in China at the end of 2017. These investments were spread across 566 companies and 45 bonds.
The sovereign fund had 96 billion NOK invested in India at the end of 2017. These investments were spread across 275 companies and 36 bonds.

Norway’s GPFG had 6.801 billion NOK invested in Saudi Arabia at the end of 2017.

Maiden Lane I Ends, Federal Reserve Aims to Shrink Balance Sheet

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The U.S. Federal Reserve’s balance sheet has been set to decline automatically since 2017, as the central bank has been liquidating funds from its US$ 4 trillion in Treasury bonds and mortgage-backed securities. As holdings matured, the Fed refrained from reinvesting them. This amounts to US$ 40 billion in monetary tightening monthly. Meanwhile, interest rates have slowly, and continuously, risen. The maturation of these Fed assets could exert upward pressure on long-term yields.

Mortgage rates, applications, and home sales have been falling, likely due to the rising rates. While rates are still historically low, U.S. President Trump has criticized the rate hikes. However, the Fed has no interest in changing course, and rates are set to continue to rise. According to Fed meeting minutes, “The Chairman suggested that the Committee would likely resume a discussion of operating frameworks in the fall.”

The size and content of the Fed balance sheet going forward will be a point of discussion for Chairman Jerome Powell. While there is no end in sight for the Fed’s plans to tighten economic policy, changing conditions may warrant further examination. With the U.S. stock market thriving, there is no indication that tightening has had a material impact on the economy. However, conventional wisdom asserts that the Fed will raise rates “until something breaks.” Market commentators have also suggested that, in the event of an emergency, the Fed will have a harder time stepping in due to the size of its balance sheet. A large part of the Fed’s monetary strategy is based around communications, and Fed-watchers have made a habit of hanging on every word. The Fed announced a shrinking balance sheet well in advance, and made gradual moves in that direction. The process has been smooth thus far. The Fed’s tightening will reach its peak, US$ 50 billion, in October. It is unclear exactly how much stimulus is still needed in the economy to reach the Fed’s 2% inflation target. The Fed’s easing policies have been criticized for the lopsided benefits they provided, more for Wall Street than Main Street. However, the easing will reduce their role in the market.

The End of Maiden Lane I

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QIA Gets a New CEO

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Sheikh Abdullah Bin Mohammed Al-Thani exited as CEO of the Qatar Investment Authority (QIA). He has been appointed as minister of state by Amiri Order No. (4) of 2018.

Mansoor bin Ebrahim Al-Mahmoud is appointed as the new CEO of QIA. He held positions in various organizations such as CEO of Qatar Development Bank and worked at Qatar Museums.

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SWFI First Read, September 19, 2018

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QIA Eyes Investment in Chinese Lender Lufax

The Qatar Investment Authority (QIA) is in talks about a possible investment into Shanghai-based Lufax, one of China’s largest online lenders. The seller of the possible stake is China’s Ping An Insurance (Group) Co. Ltd. Lufax’s official name is Shanghai Lujiazui International Financial Asset Exchange Co. Ltd.

Wealth Funds Back Hotpot Giant

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