According to a letter released this week, thāe manager of Norway’s $2.3 trillion sovereign wealth fund has suggested drastically reducing its exposure to U.S. Treasuries as part of a larger reorganization of its bond investments to boost returns.
According to the letter, Norges Bank Investment Management has suggested lowering its weighting to government bonds within its benchmark bond index from 70% to 50%, with the largest holding, U.S. Treasuries, receiving the largest reduction.
According to Reuters calculations, the adjustments would result in a reduction of around $80 billion from the fund’s existing holdings of approximately $215 billion in U.S. Treasuries as of the end of June.
The markets for government bonds have been in disarray lately, with long-term borrowing costs skyrocketing as investors were alarmed by growing inflation and government debt levels.
The largest sovereign wealth fund in the world, based in Norway, holds an average of 1.5% of all listed firms worldwide. Because of its size, portfolio choices can have an impact on more general market flows.
In order to minimize market effect and transaction costs, Norges Bank IM stated that any adjustments would be implemented gradually as it awaited the ministry’s answer.In the letter, Ida Wolden Bache, governor of Norges Bank, and Nicolai Tangen, CEO of Norges Bank IM, suggested that the government subindex of the bond index be lowered from 70% to 50%.
“A government share of 50% will be sufficient to cover the liquidity needs, including in periods of turbulence in financial markets.”
In a separate letter, the fund also suggested increasing investments in unlisted assets, partly to mitigate concentration risks that have increased in its equity portfolio due to the surge in the share prices of some U.S. tech companies.
