The return on Norway's Government Pension Fund, one of the world's biggest sovereign wealth funds, was 13.5 percent in the third quarter of 2009, the best quarterly result ever - - raising the total fund value to $455bn.

The fund is managed by Norges Bank, the Bank of Norway, and the strong upturn in markets in the second quarter continued in the third quarter, leading to a return of NOK529 billion krone so far this year, Yngve Slyngstad, CEO of Norges Bank Investment Management (NBIM). said on Tuesday.

The return on the fund’s equity portfolio was 17.7 percent in the third quarter, while fixed income investments gained 7.2 percent.

The value of the fund rose by NOK163 billion to NOK2 549 billion in the third quarter, helped by inflows of NOK49 billion. This was on a level with capital transfers in the previous two quarters but significantly lower than in 2008. A strong krone reduced the fund’s value by NOK211 billion. NBIM said krone fluctuations have no impact on the fund’s international purchasing power.

The strong rise in international equity markets helped increase the fund’s share of equity investments to 62 percent at the end of the third quarter and the recovery in oil prices boosted inflows.

The fund’s total return exceeded the benchmark portfolio by 3.4 percentage points in the first nine months of the year. The return lagged the benchmark portfolio by 3.4 percentage points in 2008.

In 2007, the Norwegian government decided to increase the proportion of equities in the fund from 40 percent to 60 percent and the fund now owns 1 percent of all global stocks and 1.8 per cent of those in Europe.

The fund's value stood at NOK2,549bn ($455bn, €305bn, £270bn) at the end of September.

It was established in 1996 and is the second largest sovereign wealth fund after that of the United Arab Emirates  (UAE).

Norway has a population of 4.6 million and had oil revenues of $68 billion in 2008.

Last Saturday, on a flight to Kuala Lumpur, I remarked to a Norwegian that everyone must be happy in his country given the huge wealth fund for future generations.

He grumbled that the health service needs more money and the politicians are too tight-fisted with the country's wealth.

In the boom years, fellow North Sea oil producer, the UK, increased public spending to 47 percent of GDP, from 42 percent in 2003. By comparison, public spending in Norway fell to 40 percent from 48 percent of GDP.

One of the legal rules governing the wealth fund, limits government spending to four percent of the fund's value in "normal years" to finance budget shortfalls.

On Tuesday, Jens Stoltenberg, prime minister, told a seminar on business politics, the government would start curbing oil spending again as Norway emerges from recession, while still aiming to protect jobs.

"The challenge from 2010 and ahead will be to again get spending down towards the four percent trajectory," Stoltenberg said. "I promise that there won't be tax cuts, but responsible fiscal policies."

Read the quarterly report