Norway's oil earnings are invested abroad to secure future pensions
The Government Pension Fund of Norway suffered a 633bn kroner ($92bn; £66bn) loss on its investments in 2008.
The loss, which amounts to some 125,000 kroner for every Norwegian, came after a "sharp fall in global equity prices", head fund manager Yngve Slyngstad said.
Bond investments also underperformed as the fund's portfolio was "less well diversified" than expected, he said.
The $330bn fund is the world's second largest sovereign wealth fund after that of the United Arab Emirates.
It comprises two separate sovereign wealth funds, one of which invests Norway's oil earnings abroad.
"During the year, we saw a bank, credit and liquidity crises in the financial system, which has gradually come to encompass a crisis in the real economy," Mr Slyngstad said.
The value of the fund's shares, which account for about half its portfolio, fell by about a fifth while the value of its bonds rose only slightly, up 1.6% during the year.
Mr Slyngstad's direct boss, Norwegian central bank governor Svein Gjedrem said "the financial crisis has revealed weaknesses in our active management".
Mr Slyngstad's salary will be reduced this year to 3.5m kroner from a salary and bonus package worth some 11m kroner last year.
In spite of last year's investment losses, the value of the fund's international division, commonly known as the "oil fund", nevertheless rose after fresh oil earnings were injected.
Some 384bn kroner was injected into the oil fund after Norway, the world's fourth largest oil and gas exporter, saw its earnings soar on the back of record energy prices during summer.
Currency movements also counted in the fund's favour, hence the Government Pension Fund of Norway's value rose to 2.275trn kroner by the end of the year from 2.120trn at the end of the July to September quarter.
As such, it owned 0.77% of all listed shares in the world at the end of 2008.