Published by Global Banking and Finance Review
Posted on January 29, 2025
By Gwladys Fouche
OSLO (Reuters) -Norway's $1.8 trillion sovereign wealth fund, the world's largest, reported on Wednesday a record annual profit of 2.51 trillion crowns ($222 billion), driven by last year's tech rally, but warned that strong returns won't last forever.
It was the second straight year of record profits, beating the 2.2 trillion Norwegian crowns earned in 2023.
"It was a very strong year," Nicolai Tangen, CEO of Norges Bank Investment Management, the fund's operator, told a press conference. "We had massive gains from technology."
Nearly 50% of the return came from tech stocks, fund data showed, first among them Nvidia.
Tangen warned those returns may not continue. "I just want to warn again that this will not last forever," he said.
Semiconductor stocks in the U.S. and Europe climbed on Wednesday for a second day after China's low-cost DeepSeek AI tool triggered a punishing selloff in artificial intelligence-linked shares earlier this week.
Stress tests the fund released Wednesday quantified the risk posed by an AI stock correction, a debt crisis or geopolitical risk, with scenarios showing the fund could lose 18%, 40% or 35% of its value for each risk respectively - and more if they were combined.
Despite this, the fund is not taking fresh steps to address its dependency on tech stocks. It had a "small" underweight stance in tech stocks before Monday's sell-off in AI-related shares and had not made major changes this week, Tangen said.
NBIM, which invests the Norwegian state's revenues from oil and gas production, is one of the world's largest investors, owning on average 1.5% of all listed stocks worldwide. It also invests in bonds, real estate and renewable energy assets.
The fund's return on investment in 2024 was 13%, 0.45 percentage point lower than the return on its benchmark index.
Inflows from the Norwegian state into the fund in 2024 totalled 402 billion crowns, short of a record set in 2022 of nearly 1.1 trillion crowns.
The return on equity investments was 18% last year, fixed income investments gained 1%, unlisted real estate returned a negative 1% and unlisted renewable energy infrastructure had a return of minus 10%, NBIM said.
At the end of the year, 71.4% of the fund's assets were allocated to equities, up from 70.9% in 2023, bonds declined to 26.6% from 27.1%, unlisted real estate fell to 1.8% from 1.9% and renewable infrastructure represented 0.1% of investments, unchanged from the previous year.
($1 = 11.2858 Norwegian crowns)
(Reporting by Gwladys Fouche. Editing by Terje Solsvik and Mark Potter)
