Norway Unexpectedly Pulls $400 Million From Sovereign Wealth Fund

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While analysts focus on rumors that Germany might be heading toward fiscal stimulus, another Northern European economic powerhouse might already be preparing for a government spending spree. 

According to Bloomberg, which cited data from the Norwegian Treasury, the biggest oil and gas producer in Western Europe unexpectedly withdrew 3.6 billion kroner ($395 million) from its $1 trillion sovereign wealth fund, one of the biggest piles of capital in the world. 

This marked the first time money has ever been withdrawn from the fund, which was set up in 2016 to manage Norway's oil wealth. After oil prices crashed, the fund's size stagnated. But Norway was able to start depositing money again in June 2018, and, until August, had deposited at least some oil proceeds every month since.  

Then again, the fund's decisions often take the broader investing community by surprise.

In an attempt to diversify away from energy, the fund dumped shares of "pure-play exploration companies" (a sizable chunk of its energy-related holdings) earlier this year. The fund also sold EM bonds to make more room for equities, another smart move that has paid off this year.

Similarly, the decision to withdraw money from the fund last month was particularly unexpected because the Norwegian government said in its latest revised budget that it expected to deposit a total of 34 billion kroner ($3.7 billion) into the fund during 2019. As of August, the fund has seen net inflows of 19.9 billion kroner ($2.2 billion), putting the government slightly behind its goal for the year.

Although the government refused to comment on the circumstances behind the withdrawal. But one possible motive can be found in the global oil market: Prices tumbled in August, sticking the Norwegian government with a hole in its budget. Benchmark Brent crude hit a seven-month low of about $56 a barrel in early August amid global growth concerns.

That’s well below the government’s oil-price forecasts from its revised budget. The Norwegian government had forecast prices between $67 and $70 a barrel between August and the rest of the year. 

So, there's one possible reason.

Then again, maybe Norway didn't decide to pull money out simply to pump back into government services. Perhaps there's some insight to be gleaned from the fact that the perennially bullish sovereign wealth fund has decided to take some profits?