Rising above regret

I can’t help noticing that many people are skeptical about current stock-market valuations. And I’m hearing concern from both friends and clients about the high allocation to equity – 70 per cent – in the Norwegian Government Pension Fund Global. Could we end up regretting that high equity share?

Of course, sharp market declines can never be ruled out, but let’s take this anxiety seriously. A crash is defined as a decline of at least 20 per cent. As of Q3 2025, the fund is worth 20,440 billion kroner (equal to €1,750 billion or $2,020 billion). If the stock market now falls by 20 per cent without anything happening to the rest of the portfolio, the fund would shrink to below 17,600 billion kroner. The value would fall by more than 2,860 billion kroner.

This is not just a large paper loss. It would also reduce the potential fiscal leeway in the government budget by 86 billion kroner (three per cent of the decline). Such an event surely qualifies as a serious blow.

The equity share of the fund increased from 40 per cent to 60 per cent in 2007 and then to 70 per cent in 2017. If we imagine a crash affecting only 40 per cent of today’s fund value, the decline would be reduced by well over 1,200 billion kroner. And if this would make you think there’s room for regrets about the increase in the equity share, I don’t blame you.

It’s just that we would never have today’s fund value with a 60 or 40 per cent equity share.

If we had not raised the share to 70 per cent in 2017, the fund would now, by my calculations, be worth around 19,000 billion kroner. This is a rough estimate, lacking more detailed input, but it illustrates the scale of things. And if we hadn’t increased from 40 per cent either, the fund would now be around 16,000 billion.

From today’s value, the stock market would have to fall by more than 4,400 billion kroner for the fund to drop to such a level.

And we’re not done yet. A fund with 40 per cent equities would of course have fallen in value as well, meaning that the actual fund would need to fall even more. And then the 40-per cent fund would have to fall further… We can follow this logic in a downward spiral – or set up a simple equation showing that the values converge at a decline of 56 per cent. If we were to experience an even greater drop than that, then we could legitimately regret the high equity share.

But something like that is very, very unlikely.

If we allow ourselves to hope that politicians understand the long-term risk in the stock market, I think we can say several thousand billion thanks for the high equity share.

And if you’re still not convinced by the fact that it would take a 56 per cent decline, I can offer a longer-term example: If, at the start of the 2000s, you had invested 70 per cent in our discretionary management of Norwegian equities and 30 per cent in our liquidity fund, the stock market would have had to fall by 92 per cent before you’d have reason to regret it. Would you object to my assertion that this is never going to happen?