Monday August 16 2010 01:28

By Ian Edmondson and Erik Durhan
Norway’s Government Pension Fund Global, the country’s main investment vehicle for its oil revenue, lost $25 billion on its investments in the second quarter, dragged down by a decline in equities, particularly its holding in oil giant BP PLC, the fund said Friday.
BP was the fund’s worst performing stock in the sovereign-wealth fund’s portfolio, as the price of the oil giant’s shares halved in the quarter. That lowered to value of the fund’s holding in the oil company to 10.56 billion Norwegian kroner ($1.71 billion) at the end of June from 18.89 billion kroner at the end of March. BP shares plunged following April Deepwater Horizon disaster, the worst offshore oil spill in U.S. history.
“The spill put the spotlight on safety standards in the oil industry,” said Yngve Slyngstad, chief executive of Norges Bank Investment Management, which manages the fund.
Even so, the pension fund bought BP shares in the period, he said.
“We have increased our exposure,” he said, reasoning that the fund’s stake in the U.K. company had fallen below the average ownership level of other European stocks.
The fund has come under criticism for its ownership of BP shares. Mr. Slyngstad said he supported the company’s efforts to improve safety and reliability.
“We also seek a wider industry effort that should be led by the largest companies to improve safety and environmental standards,” he said.
Despite the investment loss, the fund rose to 2.792 trillion kroner in the quarter, helped by a stronger dollar and pound, which lifted market values by 149 billion krone in local-currency terms. The government also increased the fund’s capital by 35 billion kroner, most of which was invested in fixed-income securities.
The fund allocated 59.6% to shares, which fell 9.2%, and 40.4% to fixed-income securities, which increased 1% over the quarter.
“The biggest stock-market drop was in Europe, where the fund has about half its equity investments,” Mr. Slyngstad said, adding that the decline was largely driven by concern over high sovereign debt in some European countries, funding challenges for banks and fears of a new economic slowdown.
The Europe Stoxx 600 index fell 3.1% in the second quarter.
The Dow Jones Industrial Average sank 10%, while both the Nasdaq Composite Index and the Standard & Poor’s 500-stock index fared even worse.