Even the World’s Biggest Fund Lost Billions in Pandemic Year 2020
At over $1 trilllion, Norway has the world's largest wealth fund that serves as a pension fund for its 5 million citizens. It wasn't immune to the pandemic in H1 2020.| Source:
- Norway’s pension fund, the largest sovereign wealth fund in the world, recorded losses in the first half of 2020.
- Bridgewater Associates, the second-biggest hedge fund in the U.S., also saw a decline in assets under management.
- Top funds struggled to deal with extreme volatility in the markets triggered by the pandemic.
Year-to-date, the U.S. stock market has slightly increased, with the S&P 500 posting a 3.8% gain. Yet some of the top funds have seen trouble securing gains throughout the pandemic year.
Norway’s pension fund, the world’s largest sovereign wealth fund, recorded a $21 billion loss in the first half of 2020.
Similarly, Bridgewater Associates, the second-biggest hedge fund in the U.S. , reportedly saw a 15% drop in assets under management.
Pandemic-Induced Unprecedented Stock Market Volatility Big Funds
The catalyst that caused leading wealth and hedge funds to underperform in 2020 is the pandemic.
On March 11, the World Health Organization (WHO) officially declared the virus outbreak as a pandemic. The WHO’s director-general Tedros Adhanom Ghebreyesus said at the time:
“We have therefore made the assessment that COVID-19 can be characterized as a pandemic. Pandemic is not a word to use lightly or carelessly. It is a word that, if misused, can cause unreasonable fear, or unjustified acceptance that the fight is over, leading to unnecessary suffering and death.”
From March to April, the global stock market saw extreme volatility. The S&P 500 dropped from 3,386 points to as low as 2,237 points from February 19 to March 23.
As the U.S. stock market plunged by more than 33%, large-scale funds saw major losses.
Trond Grande, the deputy CEO of Norges Bank Investment Management, said:
“There were major fluctuations in the equity market in this period. The year started with optimism, but the outlook of the equity market quickly turned when the Corona virus started to spread globally. However, the sharp stock market decline of the first quarter was limited by a massive monetary and financial policy response.”
The global stock market saw a sharp drop from February to March but recovered at an unprecedented rate immediately after.
Central banks and policymakers rushed to introduce stimulus deals, low-interest rates, and bond-buying programs.
Consequently, the stock market recovered quickly, leading the S&P 500 to rise by 1,144 points, posting a 51% gain since March.
Video: Norway Runs the World’s Top Pension Fund Valued at $1.1 Trillion
Why Fund Managers Lost Despite Quick Recovery Since March
Despite the recovery from the pandemic-induced correction, funds saw losses due to their positioning before the pandemic occurred.
According to CNBC data, Norway’s pension fund had 69.6% in equities, 27.6% in fixed income, and 2.8% in unlisted real estate.
Ray Dalio, the co-chief investment officer at Bridgewater, also said the firm positioned to gain exposure to rising markets.
The combination of positioning for growth in the equities market and the unexpected effect of the pandemic on global markets ultimately caused large funds to slump in 2020.
