Norway's Oil Fund Boss Warns Investors of 'Tough Times' Amid Inflation That 'Feeds on Itself'

At over 1 trillion dollars, the Petroleum Fund that was set up in the 1990s to invest the proceeds of Norway’s oil and gas industry is the largest of its kind worldwide. During the first half of the year, however, it suffered its largest-ever beating.

Nicolai Tangen, the head of Norway's Petroleum Fund, has warned investors of difficult years ahead, as the world's largest sovereign wealth fund has recorded its biggest-ever loss in the first half of 2022.

In the first half of the year, the $1.2 trillion fund suffered a 14.4 percent loss, or the equivalent of $174 billion, driven by a sell-off across all sectors except energy, it said in a statement. In the year before, however, it had gained 14.5 percent when markets soared as economies were reopening around the world.

The equity portfolio of Norway's Bank Investment Management, which manages the fund, was hit particularly hard in the first half, losing 17 percent. Facebook* parent company Meta* was the single biggest contributor to its stock market losses in the first half. According to Tangen, the most unusual thing was that the fund we lost money “in both stocks and bonds”.

“Markets don’t go down in a straight line, and I’m worried that we can have tough times for an extended period. There is a risk that we haven’t seen the worst yet,” Nicolai Tangen told The Financial Times.

At an earlier press conference, Tangen emphasized that the fund is now so big that the sums are big as well. “But we are a long-term investor so we have to tolerate these kinds of swings,” he added.

According to Tangen, the effects of reversing monetary stimulus and low interest rates from the 2008 financial crisis, coupled with the pandemic, are so huge that he predicted several more years of difficult markets.

Earlier this year, Tangen voiced apprehensions that Russia's special operation in Ukraine would make inflation problems worse, in effect making them permanent. In a fresh interview with The Financial Times, he reiterated this viewpoint.

“There is a risk that inflation will be tougher to get down than many think. Inflation feeds on itself,” he added.

The Petroleum Fund was set up in the 1990s to invest the proceeds of Norway’s oil and gas industry and is governed by the country's central bank. Its investments must be approved by the parliament, though. As of now, the sovereign wealth fund owns the equivalent of about 1.5 per cent of every listed company in the world.

Following sanctions and embargoes on Russian energy imports and other goods imposed by the West, world energy prices have been soaring, fueling inflation that keeps hitting new highs and exacerbating the cost-of-living crisis. Russian President Vladimir Putin has repeatedly stressed that Western countries' “short-sighted” policy was behind the price crunch.

*Activity of Meta (Facebook and Instagram) is banned in Russia over extremism.