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Norway mulls alternatives to sluggish Europe for $1 trillion fund

By Victoria Klesty and Gwladys Fouche
Visitors stand in front of a display screen at Microsoft's Oxford Circus in London

By Victoria Klesty and Gwladys Fouche

OSLO (Reuters) - Norway's $1-trillion-plus (£824 billion) sovereign wealth fund, the world's largest, may seek to shift the balance of its investments between Europe, the Americas and Asia, a senior official said on Wednesday.

North American equity markets have grown faster than European ones since the last time Norway examined the regional weight of the fund's reference portfolio, in 2012.

And this year investor confidence in Europe has faltered, as the region's economy slows and that of its largest country, Germany, shrinks amid trade tensions and uncertainty surrounding Britain's departure from the European Union.

"This (regional weighting) is exactly the question that we are considering now, and we are giving advice to the (finance) ministry about regional weighting of the equity reference index, by the end of this month probably," Egil Matsen, deputy central bank governor in charge of the fund, told Reuters.

Matsen's remarks refer to the proportion of money it invests in stock, bonds and property, including a stake in London's Regent Street, across different regions globally.

The fund is managed by a unit of the central bank. It advises the finance ministry and parliament, which ultimately sets the fund's investment mandate.

It is unclear at this stage what the fund will recommend and what the ultimate decision of the finance ministry will be.

The fund has 70% of its value invested in company shares but has over time been reducing the proportion held in European companies in favour of other markets such as the United States. The same has happened for government bonds.

"One of the questions is whether the current weighting, whether there are reasons to adjust that," Matsen, the top public official responsible for the sovereign wealth fund, said in an interview.

Norway invests the proceeds of its oil and gas production into a rainy day fund, which is now so big that it is equivalent to $197,000 for every Norwegian man, woman and child.

As it stands, the fund owns more European stocks and fewer company shares in the United States than the size of those markets would dictate.

That stems from the fund's current policy of directing investment to Norway's most important trading partners.

But the fund eased this policy in 2012, and has since reduced its exposure to European shares from 50% of the total equity holdings to about 34% by the end of 2018.

Some 43.0% of the fund's investments were in North America at the end of last year, while 17% were in Asia.


TECH BOOST

Separately, the fund benefited from a strong finish to the second quarter to post a 3% return on investment, buoyed by U.S. tech giants Microsoft <MSFT.O> and Facebook <FB.O>.

The fund earned 256 billion crowns (£23.4 billion) in the period, though its return was 0.19 percentage points below the fund's benchmark index mainly due to low returns in its real estate portfolio.

"Uncertainty about global trade and economic growth dampened returns early on, but markets rallied towards the end of the period, driven partly by the prospect of more expansionary monetary policy in developed markets," the fund's deputy CEO, Trond Grande, said in a statement.

Microsoft made the most positive contribution in the second quarter, the fund said in its report, followed by Nestle <NESN.S> and Facebook.

Overall, of the fund's 10 largest equity holdings, five are U.S. tech companies. The top three holdings are now Microsoft, Apple <AAPL.O> and Amazon <AMZN.O>.

The fund also participated in the initial public offering (IPO) of Uber Technologies <UBER.N>, the largest of the 68 IPOs it bought into during the quarter, it said.


(GRAPHIC: Largest sovereign wealth funds - http://fingfx.thomsonreuters.com/gfx/rngs/GULF-QATAR-QIA/010041PS3P9/index.html)



(Editing by David Goodman and John O'Donnell)