Folketrygdfondet's active management of the Government Pension Fund Norway (GPFN) delivered an excess return of 1.5 percentage points in 2023, it has revealed.

It marks the tenth consecutive year of positive returns above the benchmark index. Since 2007, the annual return has been 0.99 percentage points higher than the benchmark index. This corresponds to NOK 52.1bn in total and represents almost 15 per cent of the fund's value at the end of 2023.

Its report on risk-adjusted returns shows that the factor-adjusted excess return (alpha) is statistically significantly positive both for the GPFN as a whole and for the equity and fixed-income portfolios.

“This indicates that Folketrygdfondet's active management has improved the relationship between return and risk compared with the benchmark index and that the excess return is not due to chance," Folketrygdfondet director of operations and IT, Jørn Nilsen, said.

Various models and measures are used to retrospectively assess the realised excess return relative to the risk taken by the manager, including the information rate and the Sharpe rate.

Models are also used to explain historical results where a distinction is made between returns achieved by the manager by increasing the market risk in the portfolio, known as systematic risk, and returns due to other deviations. The latter is often referred to as risk-adjusted excess return, known as alpha.

"Folketrygdfondet can show a positive risk-adjusted return since 2007 both before and after management costs, and regardless of which method of risk-adjusted return measurement is used," Nilsen explained.

The Ministry of Finance regularly reviews the management of SPN, where risk-taking is analysed and assessed. The analyses of Folketrygdfondet's risk-taking in the report Government Pension Fund 2023 indicate that the achieved excess return cannot be explained by increased systematic risk in the portfolio compared with the benchmark index.

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