He warned of the horror scenario – then the oil fund rose 40 percent – E24

In 2022, the Oil Fund warned of a terrifying scenario of $5,000 billion falling. Since then, the value has increased by 5000 billion. – Believing that the Fund cannot fall is like believing in Santa Claus, says the chief economist.

The oil fund presented a bleak scenario in its 2022 stress test:

If things go very badly in the global economy, the fund could lose up to 40% of its value, or NOK 5,000 billion.

But the fall has not happened yet. Instead, the fund has increased by 40 percent, or NOK 5,000 billion, since the warnings came.

However, chief economist Harald Magnus Andreessen at Sparebank1 Markets believes the fund should continue to warn.

– It is important to remember that history is full of significant declines in stock prices. Believing that a box cannot fail is like believing in Santa Claus. And it can happen before you think, Andreessen tells E24.

– Is there any point in Cry of the wolf, wolfIf the wolf never comes?

– The wolf has come many times before. It has bitten investors hard many times before. The chief economist says betting that what happened before won't happen again would be a reckless strategy.

This week, the fund was valued at more than NOK 17,400 billion, more than NOK 5,000 billion higher than the value at the beginning of 2022, when the fund warned of the risks of future deflation.

At that time, the value of the fund amounted to NOK 12.340 billion.

The last time the value of the fund decreased was in 2018. Then the value fell to 8.256 billion at the end of the year, a decrease of 232 billion from the previous year.

– Very, very strong

The E24 Group has asked the Oil Fund for comment, but refers to previous data.

The head of the oil fund, Nikolai Tangen, has repeatedly warned that the value of the fund will not rise forever.

– When I say that things don't grow in the sky, it's not a joking comment, Tangin said To E24 in 2021.

“Because we have now seen 25 years of growth, with some ups and downs, but it has been very strong,” Tangen said.

But in recent years, it may seem as if the fund has actually been growing sky-high. Since the beginning of last year, the fund has crossed 13, 14, 15, 16 and 17 TrillionsTrillionsOne Norwegian trillion equals one thousand billion or 1,000,000,000,000.

This is due to rising stock markets, abnormally weak krone and large transfers from the government to the fund due to Norway's unusually high oil and gas revenues.

– It's going to be messy

The Oil Fund management repeated warnings about the possibility of a decline in the value of the fund in the years 2022, 2023 and 2024.

-It's going to be messy in the future. So, has the new normal for the fund become more uncertain and risky than we have seen in the past? “I think I would say yes to that,” Tangen said in 2023.

As recently as this year, the fund estimated i New stress test The value could, in the worst case, fall by about NOK 5,000 billion over the next three to five years, in the event of a crisis.

“We should expect the value of the fund to vary,” Trond Grande, deputy head of the oil fund, said at a press conference in January.

As he warned in 2017

As the Fund has warned in the past. In a 2017 Christmas interview, director Yngve Slyngstad told E24 that the value of the fund could fall by 40 percent in the event of a new financial crisis. At the time, the fund was worth about $8,500 billion, and its value has since increased by more than 100 percent.

Things did not go that way during the financial crisis in 2008. Then the fund's returns really fell into the red, but the extreme weakness of the krone and significant oil revenues meant that the value did not decline that year.

On the other hand, if there is a new crisis with falling markets at the same time as a strong krone, the fund's value could take a real hit, Slyngstad warned.

However, he stressed that the concern was part of his job as fund manager. It's about managing expectations, as Nikolai Tangen pointed out earlier this year.

– Use less than the verb base

funds The value of the krone is important for the government's annual use of oil money.

– Andreessen says the point of saying there is downside risk is to make sure we are chasing the market and using expected returns based on values ​​that don't necessarily stay constant.

Over time, the annual use of oil funds should be limited to three percent of the value of the fund. The goal is to preserve the fund for as long as possible.

The key is not to stretch to three percent when the sun is shining, Andreessen says.

-Are we prepared for a possible downturn then?

“Fortunately, we used less than the etiquette dictated throughout, so we had a buffer,” he says.

Norway is believed to be unique in that it only uses the proceeds of its oil assets.

– He says that Norway managed to deal with a lucky draw.

The population benefits from this, as we spend approximately 400 billion Norwegian kroner annually from this fund.