"The Government Bond Fund Act came into force on 27 March 2020, and we made the first investment in the fund on the same day. A key part of our mission is to contribute to well-functioning markets, and during the COVID-19 pandemic, there was a significant need to stabilize the loan market," says Kjetil Houg, CEO of Folketrygdfondet.
A Countercyclical Strategy
The bond fund was allocated a budget of 50 billion NOK, and investments were made on market terms. A total of just over 9.1 billion NOK was invested, yielding a result of 957 million NOK after costs. No benchmark index was set for the fund.
"The Government Bond Fund has provided essential capital to Norwegian companies during a turbulent time. Now that the pandemic measure has served its purpose, we are proud to have contributed to stabilizing the market in yet another crisis situation," says Jørgen Krog Sæbø, Chief Investment Officer Fixed Income at Folketrygdfondet.
After an initial buildup phase, the fund was gradually reduced, and a wind-down plan was adopted in the autumn of 2022 with a goal of full closure by the end of 2025. The wind-down occurred in line with bond maturities and sales after market conditions had normalized.
"Our goal is to achieve the highest possible return after costs. An important part of our mandate is also to act countercyclically, meaning that during periods of major price fluctuations, we operate contrary to market trends. The bond fund is yet another example of how countercyclical investing proves profitable in the long run," Sæbø adds.
Continued trust
During periods of financial turmoil, the government has repeatedly introduced measures to ease the burden on Norwegian companies. The Government Bond Fund has been one such measure, previously used during the financial crisis in 2009 to support the capital market.
"This has been a valuable experience for Folketrygdfondet and demonstrates that we can serve as an effective and constructive market stabilizer in challenging times. We consider it a vote of confidence that the government has entrusted us with this mandate on two occasions, and we stand ready should such a need arise again in the future," says Kjetil Houg.