State Ownership. The history, risk review and historical performance of the Norwegian state portfolio from 2003-2014

Abstract

The purpose of this thesis was to test whether there was a significant difference in the risk adjusted returns for the state portfolio, measured against the Norwegian market index or an alternative investment in the global stock market for the period 2003-2014.

The Norwegian government has an extensive ownership. The companies they own accounts for almost 1/3 of the value of all the stocks on the Oslo Stock Exchange. Compared to other Nordic countries, Norway has a high owner share.

Earlier articles on the subject have mostly revolved around how the ownership is managed, and to a small extent on the basis of the actual performance figures for each company and the entire portfolio as a whole. The debates in the media about these companies have mostly also acted on transactions in the shareholding, criticism on how they operate and rarely about their actual return (such as the Government Pension Fund of Norway is mostly about).

The relative returns are quite similar for the whole period. The state portfolio had the best returns in the period from 2003-2008, while the OSEBX had the best returns from 2009-2014. To find the answer to whether the Norwegian state ownership could be seen as successful or not, I looked at the returns measured against risk over time, and compared it to the different foreign benchmarks, and the Government Pension Fund Global of Norway. The results gave some indications that the state portfolio was an equally good portfolio to own, measured against the OSEBX in the period from 2003-2014. It beats the Norwegian market index in risk-adjusted return in every period that yields a significant alpha, when comparing against the same benchmark. The regression revealed that there were two alphas that were significant when testing the alphas for the OSEBX and the state portfolio against each other - one alpha with an excess return for the state portfolio and one alpha with an excess return for the Norwegian market. The regression between the state portfolio and the Norwegian market indicates no significant alpha, but the state portfolio has a lower risk in the period and also a higher return, giving some indications of a risk-adjusted excess return.

The various risk measures were inconsistent in the results, giving the highest appraisal ratios to OSEBX, while the state portfolio had the highest Sharpe- and adjusted Sharpe ratios for the same periods. The trend after 2009 is negative for the state portfolio with both lower returns and risk measure ratios.