Bloomberg News

Norway’s Sovereign Wealth Fund Sold All U.S. Mortgage Bonds

October 28, 2011

Oct. 28 (Bloomberg) -- Norway’s $570 billion sovereign wealth fund sold all its holdings in U.S. mortgage-backed securities as part of a shift of its fixed-income portfolio.

The fund holds no mortgage bonds issued by Fannie Mae and Freddie Mac, the U.S. mortgage financiers, and an “insignificant” amount of private home loan-backed bonds, said Yngve Slyngstad, chief executive officer of the fund, today in an interview in Oslo.

“We’ve reduced our holdings of mortgage-backed securities,” he said. “MBS has been taken out of our internal policy benchmark. This means that we don’t have mortgage-backed securities issued by Freddie Mac and Fannie Mae any longer.”

The debt was sold primarily because of the refinancing risk, he said. In the U.S., when a borrower refinances a mortgage it can cut short the maturity of the bond backed by the loan and reduce the expected interest over time, so-called prepayment risk. The fund held 36 billion kroner ($6.6 billion) in bonds from Fannie Mae at the end of the second quarter and 11.5 billion in debt from Freddie Mac at the start of the year.

The change doesn’t include European covered bonds, Slyngstad said.

The fund announced today it has changed its internal benchmark portfolio, reducing it to 4,000 bonds from 11,500 bonds and keeping primarily corporate and government debt. The fund also weighted its euro government bond holding according to gross domestic product rather than the size of the market, which it had earlier proposed as a way of reducing its holdings in nations with increasing debt.

Capital Infusion

The investor, which is part of the central bank and gets guidelines from the government, held 55.6 percent in stocks, 44.1 percent in bonds and 0.3 percent in real estate at the end of the quarter. It’s mandated to hold 60 percent in stocks, 35 percent in bonds and 5 percent in real estate, which it first bought this year.

It got its first capital infusion in 1996 and has been taking on more risk as it expands globally, raising its stock portfolio from 40 percent in 2007. It first added stocks in 1998, emerging markets in 2000 and this year real estate to boost returns and safeguard wealth.

Norway, a nation of 4.9 million people, generates money for the fund from taxes on oil and gas, ownership of petroleum fields and dividends from its 67 percent stake in Statoil ASA, the country’s largest energy company. Norway is the world’s second-largest gas exporter and the seventh-biggest oil exporter. The fund invests outside Norway to avoid stoking domestic inflation.

--With assistance by Meera Bhatia in Oslo. Editors: Jonas Bergman, Tasneem Brogger

To contact the reporter on this story: Josiane Kremer in Oslo at Jkremer4@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net


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