Norway’s $1.8 trillion sovereign wealth fund, the world’s largest, achieved a record annual profit of 2.51 trillion crowns ($222 billion) in 2024, fueled by a surge in technology stocks. However, the fund’s CEO cautioned that such exceptional returns are unlikely to be sustainable.
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This remarkable performance marks the second consecutive year of record profits, surpassing the 2.2 trillion crowns earned in 2023. The substantial gains were primarily attributed to the strong performance of the tech sector.
Tech Sector Drives Unprecedented Growth, But Sustainability Questioned
Norges Bank Investment Management (NBIM) CEO Nicolai Tangen confirmed the significant contribution of tech stocks, which accounted for nearly half of the fund’s overall return. Nvidia was highlighted as a leading contributor to this success. Despite the impressive results, Tangen emphasized the need for cautious optimism, stating that such high returns are not guaranteed to persist.
Recent market volatility, including a sell-off in AI-related stocks triggered by the emergence of China’s DeepSeek AI tool, underscores the inherent risks in the technology sector. This volatility reinforces Tangen’s warning about the unpredictable nature of future returns.
Stress Tests Highlight Potential Vulnerabilities
NBIM conducted stress tests to assess the potential impact of various risks, including an AI stock correction, a debt crisis, and geopolitical instability. The results revealed potential losses ranging from 18% to 40% of the fund’s value, depending on the specific scenario. The possibility of combined risks further amplifies the potential for significant losses.
Despite these findings, the fund is maintaining its current investment strategy, with a slight underweight position in tech stocks. Tangen indicated that no major adjustments have been made in response to the recent market fluctuations.
Fund’s Diversified Portfolio and Performance Breakdown
NBIM, responsible for managing Norway’s oil and gas revenues, holds a globally diversified portfolio encompassing stocks, bonds, real estate, and renewable energy assets. The fund’s overall return on investment in 2024 was 13%, slightly below its benchmark index.
A detailed breakdown of the fund’s performance reveals an 18% return on equity investments, a 1% gain in fixed income investments, a negative 1% return on unlisted real estate, and a negative 10% return on unlisted renewable energy infrastructure.
Asset Allocation Shifts Reflect Market Dynamics
The fund’s asset allocation at the end of 2024 saw an increase in equities to 71.4% from 70.9% in 2023, while bond holdings decreased to 26.6% from 27.1%. Unlisted real estate and renewable infrastructure allocations also experienced slight declines. These shifts in asset allocation reflect the fund’s ongoing efforts to optimize its portfolio in response to evolving market conditions.
Conclusion: Record Profits Tempered by Cautious Outlook
The Norwegian sovereign wealth fund’s record-breaking profit in 2024 highlights the significant influence of the technology sector on its performance. While celebrating this achievement, the fund acknowledges the inherent volatility of markets and emphasizes the importance of a long-term perspective. The conducted stress tests, coupled with recent market events, underscore the potential for future challenges. The fund’s diversified portfolio and strategic asset allocation will be crucial in navigating these uncertain times.
