KEY FIGURES AND FINANCIAL REPORTING
3
4. SENSITIVITY ANALYSIS FOR LEVEL 3 HOLDINGS
Table 7.3 Additional specification Level 3 and sensitivities
Sensitivities
30.09.2017
Specification
of Level 3
holdings
30.09.2017
Unfavour
able
changes
10 992
1 118
Corporate bonds
Securitised bonds
Amounts in NOK million
Equities and units
Government-related bonds
Total bonds
Sensitivities
31.12.2016
Favourable
changes
Specification
of Level 3
holdings
31.12.2016
Unfavour
able
changes
Favourable
changes
-2 275
2 275
11 863
-2 638
2 606
-112
112
902
-90
90
150
-15
15
161
-16
16
26
-3
3
327
-33
33
1 294
-130
130
1 390
-139
139
Unlisted real estate
198 341
-12 736
14 593
188 469
-9 678
10 711
Total
210 627
-15 141
16 998
201 722
-12 455
13 456
There is uncertainty associated with the fair
value of holdings classified as Level 3, due to
the use of unobservable inputs in the valuation.
In the sensitivity analysis presented in table 7.3,
reasonably possible alternative assumptions for
the key unobservable inputs have been applied.
The alternative fair value estimates, given for a
favourable and unfavourable outcome, illustrate
the sensitivity of the fair value estimates to
changes in the key unobservable inputs.
Real estate values are particularly sensitive to
changes in yields and assumptions influencing
future revenues. In an unfavourable outcome, it
is calculated that an increase in the yield of 0.2
percentage points, and a reduction in future
market rents of 2 percent will result in a
decrease in value of the real estate portfolio of
approximately 6.4 percent or NOK 12 736
million. In a favourable outcome, a decrease in
the yield of 0.2 percentage points and an
increase in future market rents of 2 percent will
increase the value of the real estate portfolio by
7.4 percent or NOK 14 593 million. The increase
in sensitivity compared to year-end is mainly
due to increased size and changes in the
composition of the unlisted real estate
portfolio.
The sensitivity for bonds classified as Level 3 is
essentially unchanged compared to year-end.
The sensitivity for equities classified as Level 3
is slightly reduced, mainly due to reduced
holdings of equities classified as Level 3.
39
3Q17 GOVERNMENT PENSION FUND GLOBAL QUARTERLY REPORT /2017
HIGHLIGHTS Third quarter 2017 in brief 3.2% 192 Bn. KR The Government Pension Fund Global returned 3.2 percent, or 192 billion kroner, in the third quarter of 2017. ISSN 1893-4846 (print) ISSN 1893-5524 (web) Design: Brandlab Photo: Getty Images/Allan Davey/unexpected Production: 07 Media AS
EQUITY INVESTMENTS FIXED-INCOME INVESTMENTS UNLISTED REAL ESTATE INVESTMENTS 4.3% 0.8% 2.7% Equity investments returned 4.3 percent, while fixed-income investments returned 0.8 percent. Investments in unlisted real estate returned 2.7 percent. The return on the funds investments was 0.1 percen
7,952 Bn. KR The fund had a market value of 7,952 billion kroner at the end of the quarter and was invested 65.9 percent in equities, 31.6 percent in fixed income and 2.5 percent in unlisted real estate. EQUITY INVESTMENTS FIXED-INCOME INVESTMENTS UNLISTED REAL ESTATE INVESTMENTS 65.9% 31.6%
Contents 1 2 3 INVESTMENTS MANAGEMENT KEY FIGURES AND FINANCIAL REPORTING Equity investments__________ 6 Management_______________14 Key figures_________________ 19 Fixed-income investments___9 Risk_________________________ 15 Financial reporting_________ 22 Real estate investments____
Investments EQUITY INVESTMENTS Equity investments returned 4.3 percent and made up 65.9 percent of the fund at the end of the quarter. Returns were driven by good macroeconomic data and higher corporate earnings than expected. Global equity markets generally exhibited little volatility despite polit
INVESTMENTS Stocks in Asia and Oceania, which made up 21.8 percent of the funds equity investments, returned 3.7 percent. Japanese stocks returned 3.7 percent, or 5.3 percent in local currency, and amounted to 8.9 percent of equity investments. Emerging markets returned 6.4 percent and accounted fo
Technology stocks returned 6.5 percent, with long-term trends continuing to fuel expectations for future earnings and returns in the sector. Semiconductor producers in particular contributed to the return, boosted by strong demand and limited supply. Consumer services stocks were the weakest perform
INVESTMENTS FIXED-INCOME INVESTMENTS Fixed-income investments returned 0.8 percent and accounted for 31.6 percent of the fund at the end of the quarter. There was little movement in yields in the main markets during the quarter. government debt from a single issuer. In line with market expectation
Japanese government bonds amounted to 6.4 percent of the funds fixed-income holdings and returned -1.3 percent, or 0.1 percent in local currency. The Bank of Japan kept ten-year yields stable around zero percent as part of its monetary policy. The fund also holds bonds from governmentrelated institu
INVESTMENTS Changes in fixed-income holdings The market value of investments in bonds denominated in emerging market currencies fell from 12.3 to 11.4 percent of total fixed-income investments during the quarter. Chart 5 Price developments in fixed-income sectors. Measured in US dollars. Indexed
REAL ESTATE INVESTMENTS Unlisted real estate investments returned 2.7 percent and amounted to 2.5 percent of the fund at the end of the quarter. 12 The return on unlisted real estate investments depends on rental income, operating expenses, changes in the value of properties and debt, movements in
INVESTMENTS Purchases and sales of unlisted real estate The fund acquired a new property at 900 16th Street in Washington, D.C. through a new partnership with Oxford Properties Group. The investment was announced in July. The fund paid 74.0 million dollars, or 624.7 million kroner, for its 49 perce
Management MANAGEMENT We aim to leverage the funds long-term outlook and considerable size to generate high returns and safeguard wealth for future generations. 14 The investment mandate issued by the Ministry of Finance was amended with effect from 1 January 2017. The return on all of the funds i
MANAGEMENT Table 8 Contributions from asset classes to the funds relative return in third quarter 2017. Percentage points Total Attributed to external anagement m Equity investments 0.01 0.03 Fixed-income investments 0.05 Unlisted real estate investments 0.05 Total 0.10 Unlisted real
will impact on calculations of the funds expected relative volatility. As daily pricing is not available for our real estate investments, we use a model from MSCI to calculate the risk for the funds unlisted real estate investments. benchmark index. One of these limits is expected relative volatili
MANAGEMENT estate, are now included in the calculation of expected relative volatility and measured against the funds benchmark index, which consists solely of global equity and bond indices. The limit for expected relative volatility, including unlisted real estate, is 1.25 percentage points. The
18 a criterion for including companies in its indices. We have previously taken part in two separate consultations organised by S&P Dow Jones Indices and FTSE Russell on the same issue. Ownership We voted at 1,277 general meetings in the third quarter, considering and voting on a total of 10,462 p
KEY FIGURES AND FINANCIAL REPORTING 3 Key figures Table 10 Quarterly return. Percent 3Q 2017 2Q 2017 1Q 2017 4Q 2016 3Q 2016 Year-to-date 30.09.2017 13.79 Returns in international currency Return on equity investments 4.31 3.37 5.53 4.91 6.03 Return on fixed-income investments 0.85
Table 12 Historical key figures as at 30 September 2017. Annualised data, measured in the funds currency basket Since 01.01.1998 20 Last 10 years Last 5 years Last 3 years Last 12 months Fund return (percent) 5.98 5.73 9.23 7.29 12.21 Relative return on fund (percentage points)1 0.27
KEY FIGURES AND FINANCIAL REPORTING 3 Table 13 Key figures. Billions of kroner 3Q 2017 2Q 2017 1Q 2017 4Q 2016 3Q 2016 Market value Market value of equity investments 5,242 5,225 5,082 4,692 4,317 Market value of fixed-income investments 2,511 2,597 2,592 2,577 2,584 Market valu
Financial reporting Financial statements Notes Income statement________________________ 23 Note 1 General information____________ 27 Balance sheet_____________________________24 Note 2 Accounting policies_____________ 28 Statement of cash flows___________________ 25 Note 3 Returns per asse
KEY FIGURES AND FINANCIAL REPORTING 3 Income statement Amounts in NOK million Year-to-date Year-to-date 30.09.2017 30.09.2016 Note 3Q 2017 3Q 2016 2016 - Equities and units 4 170 560 218 761 618 424 81 661 342 813 Profit/loss on the portfolio before foreign exchange gains and losses I
Balance sheet Amounts in NOK million Note 30.09.2017 31.12.2016 ASSETS Deposits in banks Secured lending Cash collateral posted Unsettled trades 24 12 413 17 759 179 489 134 338 1 386 2 320 44 505 13 196 Equities and units 5 4 767 259 4 373 042 Equities lent 5 457 077 340 865 B
KEY FIGURES AND FINANCIAL REPORTING 3 Statement of cash flows Year-to-date 30.09.2017 Year-to-date 30.09.2016 2016 104 764 98 182 118 517 55 262 56 582 74 832 Receipts of interest and dividend from unlisted real estate subsidiaries 2 679 2 652 3 657 Net receipts of interest and fee fr
Statement of changes in owners capital Amounts in NOK million 1 January 2016 Total comprehensive income 3 494 640 3 976 580 7 471 220 -281 370 -281 370 - -74 300 30 September 2016 3 420 340 3 695 210 7 115 550 1 October 2016 3 420 340 3 695 210 7 115 550 - 418 213 418 213 Net infl
KEY FIGURES AND FINANCIAL REPORTING 3 Notes to the financial reporting Note 1 General information 1. INTRODUCTION Norges Bank is Norways central bank. The bank manages Norways foreign exchange reserves and the Government Pension Fund Global (GPFG). The GPFG shall support saving to finance future g
Note 2 Accounting policies 1. BASIS OF PREPARATION The regulation concerning the annual financial reporting for Norges Bank, which has been laid down by the Ministry of Finance, requires that Norges Banks financial statements shall include the financial reporting for the GPFG, and that these shall b
KEY FIGURES AND FINANCIAL REPORTING 3 Note 3 Returns per asset class Table 3.1 Returns per asset class 1Q 2017 4Q 2016 3Q 2016 Year-to-date 30.09.2017 3Q 2017 2Q 2017 Return on equity investments (percent) 4.31 3.37 5.53 4.91 6.03 13.79 Return on fixed-income investments (percent) 0.
Note 4 Income/expense from Equities and units, Bonds and Financial derivatives Tables 4.1 to 4.3 specify the income and expense elements for Equities and units, Bonds and Financial derivatives, where the line Income/expense shows the amount recognised in profit and loss for the respective income st
KEY FIGURES AND FINANCIAL REPORTING 3 Note 5 Holdings of Equities and units, Bonds and Financial derivatives Table 5.1 Equities and units 30.09.2017 Amounts in NOK million Fair value including dividends 31.12.2016 Accrued dividends Fair value including dividends Accrued dividends Equities
Note 6 Unlisted real estate Investments in unlisted real estate are made through subsidiaries of Norges Bank, which exclusively constitute investments as part of the management of the GPFG. Subsidiaries presented in the balance sheet as Unlisted real estate are designated upon initial recognition as
KEY FIGURES AND FINANCIAL REPORTING 3 The change in the period for the balance sheet line Unlisted real estate is specified in table 6.2. Table 6.2 Changes in carrying amounts unlisted real estate Amounts in NOK million 30.09.2017 31.12.2016 188 469 180 021 Payments to new investments 6 42
Table 6.3 Income from underlying real estate companies Amounts in NOK million Net rental income1 Realised gain/loss Fair value changes properties2 Fair value changes debt2 1 949 6 301 5 778 2016 7 645 192 57 207 110 109 2 809 2 589 5 364 999 1 416 28 -72 -192 -584 -191 -103
KEY FIGURES AND FINANCIAL REPORTING 3 Note 7 Fair value measurement 1. INTRODUCTION The fair value of the majority of assets and liabilities is based on official closing prices or observable market quotes. If the market for a security or an asset is not active, fair value is established by using s
2. FAIR VALUE HIERARCHY Table 7.1 Investments by level of valuation uncertainty Amounts in NOK million Level 3 Total 30.09.2017 31.12.2016 30.09.2017 31.12.2016 30.09.2017 31.12.2016 30.09.2017 31.12.2016 Equities and units 5 179 693 4 673 199 33 651 28 845 10 992 11 863 5 224 336 4 71
KEY FIGURES AND FINANCIAL REPORTING These include equities for which trading has recently been suspended or illiquid securities that are not traded daily. Some holdings (0.3 percent), for example equities that are not listed, are illiquid due to lock-in periods, or where trading has been suspended
Table 7.2 Changes in Level 3 holdings Amounts in NOK million 01.01.2017 Purchases Equities and units Bonds Unlisted real estate 1 Total Amounts in NOK million 38 Equities and units Bonds 1 Sales Settlements TransTransNet ferred into ferred out gain/loss Level 3 of Level 3 Foreign excha
KEY FIGURES AND FINANCIAL REPORTING 3 4. SENSITIVITY ANALYSIS FOR LEVEL 3 HOLDINGS Table 7.3 Additional specification Level 3 and sensitivities Sensitivities 30.09.2017 Specification of Level 3 holdings 30.09.2017 Unfavour able changes 10 992 1 118 Corporate bonds Securitised bonds Amounts
Note 8 Risk MARKET RISK Market risk is the risk of changes in the value of the portfolio due to movements in equity prices, interest rates, real estate values, exchange rates and credit spreads. Norges Bank Investment Management measures market risk both for the actual portfolio and the relative mar
KEY FIGURES AND FINANCIAL REPORTING 3 Table 8.1 Allocation by asset class, country and currency Market value in percent by country and currency1 30.09.2017 Market Market value in percent by asset class Asset class Market Equities Developed 89.7 Developed 90.5 US 35.9 US 37.6 31.12.
At the end of the third quarter, the share of equities in the fund was 65.9 percent. This is an increase from 62.5 percent at year-end 2016. The bond portfolios share of the fund decreased to 31.6 percent in the third quarter, from 34.3 percent at year-end. The year-to-date change in asset class all
KEY FIGURES AND FINANCIAL REPORTING 3 Table 8.3 Relative risk measured against the benchmark indices of the fund and asset classes, expected relative volatility, in basis points Expected relative volatility 30.09.2017 Min 2017 Max 2017 Average 2017 31.12.2016 Min 2016 Max 2016 Average 201
Table 8.4 Bond portfolio specified by credit rating Amounts in NOK million, 30.09.2017 AAA AA A BBB Lower rating Total Government bonds 661 886 211 384 285 288 177 779 41 393 1 377 730 Government-related bonds 145 890 118 254 41 295 11 077 1 324 317 840 Inflation-linked bonds
KEY FIGURES AND FINANCIAL REPORTING 3 Table 8.5 Counterparty risk by type of position Amounts in NOK million, 30.09.2017 Gross exposure Collateral and guarantees Net exposure Securities lending 64 595 - 737 63 859 Unsecured bank deposits1 16 696 - - 16 696 OTC derivatives including
Note 9 Management costs The GPFG is managed by Norges Bank. Costs relating to the management of the fund are mainly incurred in Norges Bank. Management costs are also incurred in subsidiaries of Norges Bank exclusively established as part of the management of the GPFGs investments in unlisted real e
KEY FIGURES AND FINANCIAL REPORTING MANAGEMENT COSTS IN SUBSIDIARIES Management costs incurred in subsidiaries consist of operating costs related to the management of the unlisted real estate portfolio. Management costs incurred in non- 3 consolidated and consolidated subsidiaries are presented i
48 UPPER LIMIT FOR REIMBURSEMENT OF MANAGEMENT COSTS The Ministry of Finance has established an upper limit for the reimbursement of manage ment costs. For 2017, the sum of total manage ment costs incurred in Norges Bank and its subsidiaries, excluding performance-based fees to external managers, i
KEY FIGURES AND FINANCIAL REPORTING 3 Translation from the original Norwegian version To the Supervisory Council of Norges Bank Report on review of interim financial information Introduction We have reviewed the financial reporting for the investment portfolio of the Government Pension Fund Glob
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