While Norway’s global sovereign wealth giant, the Government Pension Fund Global, widely known as the Oil Fund, invests trillions across international markets, its lesser-known domestic counterpart plays a key role much closer to home. Managed by Folketrygdfondet, the Government Pension Fund Norway is a cornerstone investor in Nordic capital markets, including the region’s high-yield bond market.

Jesper Bull Hein, Deputy Head of Portfolio Management Fixed Income at Folketrygdfondet, highlights several structural shifts shaping the Nordic high-yield market, including the growing presence of non-Nordic issuers and international investors. While this development could broaden and deepen the market, it also raises an important question: will the influx of global capital strengthen the market’s resilience, or make it more vulnerable during periods of stress?

Folketrygdfondet manages its investments with a traditional 60:40 allocation between equities and fixed income, with the credit segment playing an important role within the latter. Rather than focusing primarily on interest rate exposure, the fixed-income allocation is largely centered on credit markets, where Nordic high-yield bonds represent a key component. “At the top level, we run a fairly traditional 60:40 split between equities and fixed income,” explains Hein.

“The way we adjust the portfolio within the 40 percent allocation is by shifting exposure across different parts of the credit space.”

Jesper Bull Hein, Deputy Head of Portfolio Management Fixed Income at Folketrygdfondet.

While the 60:40 strategic allocation itself remains largely fixed, the team has flexibility within the fixed-income bucket to adjust positioning across different credit segments. “The way we adjust the portfolio within the 40 percent allocation is by shifting exposure across different parts of the credit space,” explains Hein. “We invest across the spectrum, from government bonds and covered bonds to financials, municipalities, subordinated bank debt and investment grade and high yield corporates.” Corporate bonds, Nordic high yield in particular, allow the fund to capture both credit and liquidity premia while also contributing diversification beyond the traditional equity-and-rates framework.

Selectivity in a Tight Credit Environment

Against a backdrop of globally compressed credit spreads, opportunities in high-yield markets have become increasingly selective. In many international markets, compensation for credit risk has declined significantly. “If you look at global credit markets today relative to history, spreads appear quite compressed,” notes Hein. “Both investment-grade and high-yield spreads, as well as the spread differential between them, are tight.”

Despite this broader trend, Hein still sees relatively better value in the Nordic high-yield market, particularly in Norway. “The Nordic market, especially the Norwegian high-yield segment, still offers value compared to many international markets,” he says. “If you control for credit risk and take into account loan documentation and covenant structures, the Nordic market on average offers a more attractive risk-reward.”

“A lot of value creation in high yield comes from avoiding the landmines, identifying the credits that will underperform and steering clear of them.”

Jesper Bull Hein, Deputy Head of Portfolio Management Fixed Income at Folketrygdfondet.

Even though spreads in the region have also tightened, Hein believes the market continues to offer attractive opportunities for investors willing to do the necessary credit work. “Value can still be found in Nordic high yield,” he says. “But you have to be selective.” Avoiding credit landmines is central to the strategy. “A lot of value creation in high yield comes from avoiding the landmines, identifying the credits that will underperform and steering clear of them,” Hein emphasizes. “That requires thorough analysis and careful selection.”

Finding Value in Smaller Issuers

One area where Folketrygdfondet continues to find attractive opportunities is smaller transactions and lesser-known issuers. “We have significant exposure to smaller transactions,” says Hein. “Over time, we believe these can offer better compensation because many investors do not look at them.” This approach requires extensive fundamental credit analysis. “You only capture that premium if you are able to do the necessary work to truly understand the business and the credit risk.”

“We have significant exposure to smaller transactions. Over time, we believe these can offer better compensation because many investors do not look at them.”

Jesper Bull Hein, Deputy Head of Portfolio Management Fixed Income at Folketrygdfondet.

Historically, the Norwegian high-yield market has offered particularly attractive spreads partly because many issuers fall into these categories: smaller companies, niche industries, or issuers coming to the market only occasionally. “A lot of these characteristics contribute to the spread investors receive,” Hein says. “Our job is to understand these risks and build a portfolio that is robust across different types of underlying risk drivers.” That process involves extensive analysis not only of the companies themselves but also of ownership structures and financing frameworks. “We spend a lot of time doing the fundamental work, understanding the companies, the owners, and the capital structure.”

A Nordic Market with Global Exposure

At year-end, the Government Pension Fund Norway held approximately NOK 145 billion (€12 billion) in its fixed-income portfolio. Of bonds issued by Norwegian companies and registstered with Nordic Trustee, the portefolio holds roughly 3.5 percent of the outstanding volume. Historically, the Nordic high-yield market was heavily dominated by Norwegian issuers, particularly within sectors such as shipping and energy. Over time, however, both the Norwegian and broader Nordic markets have diversified significantly.

“Even though you invest in Nordic issuers, you often gain exposure to global markets. That’s one of the interesting features of the market.”

Jesper Bull Hein, Deputy Head of Portfolio Management Fixed Income at Folketrygdfondet.

Although Folketrygdfondet still holds substantial exposure to Norwegian issuers, Hein emphasizes that the underlying business exposure is often global. “Many of the issuers are registered as Norwegian, but their business activities are international,” he explains. “So even though you invest in Nordic issuers, you often gain exposure to global markets.” This creates a broader diversification profile than the geographical label might initially suggest. “You can achieve a much wider geographical exposure through these companies than simply the Nordic region,” Hein adds. “That’s one of the interesting features of the market.”

A Market Becoming More International

Perhaps the most significant structural change in the Nordic high-yield market in recent years has been the growing presence of international issuers and investors. “In my view, the most fundamental development over the past two to three years has been the increasing participation of non-Nordic companies and investors,” says Hein.

“In my view, the most fundamental development over the past two to three years has been the increasing participation of non-Nordic companies and investors.”

Jesper Bull Hein, Deputy Head of Portfolio Management Fixed Income at Folketrygdfondet.

Traditionally, the market largely served Nordic companies and was dominated by Nordic institutional investors, including regional pension funds and high-yield funds. “That has started to change,” Hein notes. “As the market has matured and proven its attractiveness, companies from outside the Nordic region have increasingly turned to it for financing.” According to market data, roughly half of issuance volumes in 2025 came from non-Nordic issuers. “That is a major shift compared to five or ten years ago,” Hein says. “Much of that growth has happened in just the past two to three years.”

At the same time, international investors from the United States, the United Kingdom, continental Europe, and Asia have also entered the market. “Previously the buy side was relatively homogeneous, with investors often experiencing similar flows at the same time,” Hein explains. “The market is becoming more diversified, both in terms of issuers and investors.”

The Test of Market Cycles

Whether this development ultimately strengthens the market remains an open question. A broader and more international investor base could potentially improve liquidity and make the market more stable over time. “The expectation is that a broader investor base and issuer base normally should help create a more resilient and better-functioning market,” says Hein.

“The expectation is that a broader investor base and issuer base normally should help create a more resilient and better-functioning market. The key question is what happens during periods of stress.”

Jesper Bull Hein, Deputy Head of Portfolio Management Fixed Income at Folketrygdfondet.

An open question remains how these newer participants will behave during periods of market stress. “We have not yet seen how these new investors will react through a full market cycle,” Hein notes. If international investors treat the Nordic high-yield market as a marginal allocation, sudden withdrawals during turbulent periods could potentially increase volatility.

“The key question is what happens during periods of stress,” Hein says. “Will the new investors remain committed, or will they exit quickly?” For now, the market’s evolution remains a work in progress. “It remains an open question how this development will play out over time,” Hein concludes. “We have yet to observe how the market behaves with this new structure through both good and difficult periods.”