Notes

Norfund’s liquidity placements are largely associated with the management of excess liquidity. Various types of instrument are used in this management (time deposits, loans and bonds). The aim is to obtain the highest possible return on surplus liquidity pending investment within Norfund’s mandate and at the same time ensure that the resources are liquid.

As a consequence of the exit from SN Power in 2021, substantial liquidity became available and was placed in temporary investments: Norfund has given loans to three banks with an average interest rate of 1.5% + SOFR and a term of 5 years, with linear repayment after the first year. Bank deposits in USD have also been made.

In addition, in July 2021 Allianz was commissioned to manage USD 500 million. The portfolio consists of highly liquid covered bonds and has a weighted credit rate of AA+. The average residual maturity of the portfolio is 2.1 years. The portfolio is largely invested in development banks, i.e. within the same line of business as Norfund itself. Up to 40% can be invested in other sectors, nonetheless, but the bonds must then meet the requirements of being green and sustainable or having a social impact. Norges Bank’s Investment Management’s exclusion list is also applied. From 2022 to 2024, Norfund transferred resources from redeemed bonds totalling USD 175 million from the portfolio to Norfund’s ordinary operations account. At the beginning of the year, 41% of the portfolio was invested in euros (EUR) and 5% in sterling (GBP), but hedged against USD. At the end of 2024, all investments in GBP had been redeemed and the remaining portfolio invested in EUR (estimated share of fair value converted into USD).

Three-month rolling futures contracts have been used for currency hedging. As at year-end, 1 232 forward contracts had been entered in order to hedge 48% of the portfolio in EUR. This means that Allianz has hedged the whole portfolio against USD. The value of the portfolio was falling from 2021 to 2022 because of expectations of higher key interest rates. Since 2023 the value change has been positive. Norfund intends to hold the portfolio until maturity, so that the average annual return is estimated at 1.5% for the life of the portfolio.

The other table shows change in book value through redemption of bonds in the portfolio. There was a positive change (increase of NOK 180 million) in the value of the bond portfolio from 2023 to 2024.

Accounting principles Liquidity placements

Liquidity placements consist of instruments (time deposits, liquidity loans and bonds) with a longer or shorter fixed term intended for temporary placement of surplus liquidity pending investment within Norfund’s mandate. Liquidity placements include a bond portfolio hedged against USD consisting of securities denominated in EUR and GDP as well as USD. Futures contracts are used as a hedging instrument, with daily settlements that are not recorded on the balance sheet, but are recorded under operating results as they mature.

Recognition and exclusion: Liquidity placements are recognized in the balance sheet when Norfund becomes a party to the instrument’s contractual conditions, as for other Norfund investments. Financial assets are excluded when the contractual rights to the cash flows expire, or when the financial assets and the majority of risk factors and of advantages associated with ownership of the assets are transferred (Notes 2 and 13).

Presentation and measurement (including write-downs):

• Liquidity placements in the form of bank deposits and liquidity loans are classified as current assets and valued for write-down in the original currency according to the lowest value principle; see Section 5-2 of the Accounting Act. Value changes are presented as part of the operating results under “Value changes investments and receivables”.
• Liquidity placements in the form of investments in the bond portfolio are classified as current assets and valued for write-down purposes in the original currency according to the lowest value principle; see Section 5-2 of the Accounting Act. The portfolio consists of a number of different placements to reduce risk, and is regarded as an investment portfolio. Norfund uses the provisions on portfolio valuation here, and the financial assets are valued collectively. Value changes are presented as part of the operating results under “Value changes investments and receivables”.

Converting foreign exchange to NOK: Exchange rate differences arise as a result of changes in exchange rates when transactions and balance sheet items in foreign currency are recorded.

• Pursuant to NRS 20.15 and Section 5-9 of the Accounting Act, liquidity placements in the form of bank deposits and liquidity loans are converted at the exchange rate on balance sheet day, i.e. the close of the financial year. Currency effects are presented as part of the operating results under “Value changes investments and receivables”.
• The bond portfolio is valued as a monetary item in foreign currency and converted at the exchange rate at the end of the financial year; see Section 5-9 of the Accounting Act.Taking of interest to income: Return associated with liquidity placements is carried as interest income as and when it is paid in and earned.

Realized gains / losses: Losses on liquidity placements (excl. currency effects) as a result of insolvency, the winding-up of a company and the like, are recognized as known losses and presented under “Realized losses”. Gains on redemption (excluding currency effects) of individual bonds are taken to income in the year in which the disposal takes place and presented under “Realized gains”. Currency effects on realization, including associated futures contracts, are taken to income net under “Value investments and receivables”.