It was another turbulent year in global capital markets. The third quarter was the second weakest in the fund’s history as debt market concerns deepened and stocks declined. A recovery in the fourth quarter left the fund with an annual return of -2.5 percent, or -86 billion kroner. We are prepared for significant fluctuations in the fund’s value from year to year.
The euro-area debt crisis escalated during the year as government bond yields in southern Europe climbed. In contrast, ten-year government bond yields in large economies such as the US, Germany and the UK fell to record lows. Nominal yields on government bonds from these countries declined to below 2 percent at the end of the year, while real yields were negative.
We bought more than 150 billion kroner in European equities from the summer through the end of the year.
This was in line with the long-term strategy of investing in assets that have fallen in price and that we think will over time generate a high return. Because more than half of the fund is invested in Europe, it is of great importance to us that authorities are successful in solving the considerable structural and monetary challenges faced by the euro countries.
We continued developing our fund management in 2011 to take greater advantage of our long-term approach as we invest for future generations. We created a team to allocate funds to areas based on their long-term development and risk characteristics. We strengthened analytical capacities in equities, real estate, credit and macro- economics. We also formed a group to enhance the financial theoretical foundations for areas of the fund and established the Norwegian Finance Initiative.
The fund received 271 billion kroner in government petroleum revenue and grew to a market value of 3.31 trillion kroner in 2011. We are focused on safeguarding these substantial assets for future generations as we build our investment strategy and organisation.