NORWAY’S SOVEREIGN wealth fund, Europe’s largest stock investor, lost 77 billion kroner (€10.6 billion) in the second quarter as stocks slumped on concern the region’s deepening debt crisis would derail the global economy.

The €505.6 billion Government Pension Fund Global fell 2.2 per cent, as measured by a basket of currencies, the Oslo-based investor said yesterday. Its equity investments fell 4.6 per cent, while its bonds returned 1.5 per cent.

“A weaker-than-anticipated development in the world economy weighed on stock markets in the second quarter,” said Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, which runs the fund. “There was also increased uncertainty about the repercussions of the European sovereign debt crisis.”

Investors fled stocks as European leaders struggled to contain debt woes in the quarter.

The MSCI World Index of stocks plunged 5.8 per cent last quarter. Ten-year yields on Spanish government debt rose above 7 per cent to a euro zone record on June 18th – a level that pushed Greece, Portugal and Ireland to seek international aid.

The Norwegian fund is in the midst of a strategy shift to reduce its bond and stock holdings in Europe to capture more global growth as it struggles to meet a 4 per cent return target.

At the end of June, the fund held 59.6 per cent of its assets in stocks, 40.1 per cent in bonds and 0.3 per cent in real estate.

It is mandated to hold 60 per cent in stocks, 35 per cent in bonds and 5 per cent in real estate. The fund is managed by the central bank and gets guidelines from the Norwegian government. Its largest stock holding at the end of the quarter was Royal Dutch Shell, while its biggest bond holding was US Treasuries.

Norway’s government deposited 72 billion kroner of oil revenue into the fund in the quarter.

The fund’s result missed by 0.2 percentage point the benchmark set by the finance ministry.

Norway generates money for the fund from taxes on oil and gas, ownership of petroleum fields and dividends from its 67 per cent stake in Statoil, the country’s largest energy company. Norway is the world’s second-largest gas exporter and the seventh-biggest oil exporter. – (Bloomberg)