Why We Should Listen When the World’s Biggest SWF Talks

Here’s what I believe about investment beliefs: They matter a great deal today and will matter even more tomorrow. So it’s with this in mind that I direct you to some internal research by NBIM on what it believes about the world...


Investment beliefs are statements about capital and financial markets (and investor behavior) that inform and indeed drive investment strategies and decisions. And here’s what I believe about investment beliefs: They matter a great deal today and will matter even more tomorrow. Why?

  • Because extending the time horizon of institutional investment necessitates managing uncertainty and ambiguity, which in turn requires developing some understanding (beliefs) of global markets that extend beyond the simple pricing of risks or discounting of expected cash flows.
  • Because investment beliefs provide those enlightened investors that are willing to look beyond financial dogma an opportunity to get real. (CAPM, MPT, EMH, MVO, VAR, etc. don’t belong in the garbage... but neither do they belong on an altar.)
  • Because investment beliefs provide investment skeptics with a level of rigor and standardization that one would usually only associate with a theoretical framework...except without the theoretical framework.

In sum, investment beliefs are important because they are, in effect, the assumptions about the way the financial and investing world actually works. These assumptions inform decision-making, which affects where and how capital is deployed. So, as I said at the top, investment beliefs matter.
But here’s the thing: Developing investment beliefs is hard. It requires savvy investors to consider and understand the fundamental drivers of economic value over the long term. And that requires a lot of introspection and work.
Anyway, it’s with all this in mind that I wanted to direct you to some recent research that the Norges Bank Investment Management has published on its website. Indeed, the largest SWF in the world has been releasing a series of “Discussion Notes” (written by internal staff) that would seem to be the foundational elements for the fund’s investment beliefs.
For example, you’ve likely noticed that the NBIM is quite involved in ESG and in particular the G. Here’s a Note that explains why: “...NBIM’s expectations on corporate governance are presented. Expectations directed at boards are discussed, as is the rationale for focusing on board accountability and equal treatment of shareholders. In the discussion, the academic literature underpinning NBIM’s approach to corporate governance and opinions offered by leading industry practitioners are presented. Two sets of expectations are included as appendices that conclude the note.”
You may may have noticed the NBIM is rather involved in the promotion of more efficient and long-term markets: In this Note, the NBIM discusses “...the theoretical foundation for well-functioning financial markets and why well-functioning financial markets are essential to reach the objective for the management of the Fund. Against this background we discuss, how NBIM may work to influence how the markets we invest in function.”
In yet another note, staff reviews the phenomenon of small firm effects: “The small-firm effect (SFE) refers to the long-term average excess returns that a portfolio of small-capitalisation stocks earns over a portfolio of large capitalisation stocks. In this note, we review the extensive empirical evidence on the SFE and the various theoretical explanations that researchers have put forward for the effect.”
All of these Notes inevitably filter into a set of beliefs, which drive the fund’s investment and operational strategy. And so, as you might expect, I find the Notes fascinating. In short, they offer some remarkable insights into how the NBIM operates and what it thinks about the world. And with well over $600 billion in assets, when the NBIM talks about how it sees the world... we’d all be wise to pay close attention.