Following the appointment of an ex-hedge fund mogul as its chief executive officer, Norges Bank Investment Management has announced it will increase the number of outside managers who invest on its behalf.
Norway’s sovereign wealth fund will boost the level of external management mandates to five percent of the fund, deputy governor Jon Nicolaisen said during a speech Thursday.
According to Nicolaisen, the 11 trillion kroner ($1.2 trillion) fund has seen strong performance from its external asset managers, particularly in emerging markets.
“In view of challenges associated with responsible investment, a passive investment strategy is not really appropriate in these markets,” Nicolaisen said during the speech. “This is an area where active choices must be made.”
This echoes what the fund’s new CEO, Nicolai Tangen, said during an October 30 speech before the country’s financial and economic affairs committee. According to Tangen, since the Government Pension Fund Global’s inception, active management strategies have reported an excess return of around 0.2 percentage points, or about 100 billion kroner.
Since 1998, the fund has invested with 319 different active equity managers, according to Nicolaisen. He added that external mandates have returned 48 billion kroner cumulatively, after costs to the fund, through 2019.
The external managers won’t just have a mandate to produce returns: Norges Bank also wants them to take responsible investing into account, Nicolaisen said.
The fund is serious about responsible investing. Since 2012, it has divested from 282 companies, according to Nicolaisen.
He added that these so-called risk-based divestments have contributed to a return of around 0.27 percentage points of the value of Norges Bank’s equity portfolio, as measured against the index. This is around 7 billion kroner returned since 2012, he said.
Climate-related divestments paid off the most for the sovereign wealth fund, contributing just under 0.2 percentage points to the equity portfolio, a chart included in the presentation shows.
[II Deep Dive: Why Did a Hedge Fund Manager Worth $700 Million Take a $630,000-a-Year Job Managing an Oil Fund?]
Norges Bank faced controversy earlier in 2020 after hiring Tangen to replace Yngve Slyngstad as its CEO. Local media reports questioned the circumstances of his hiring, particularly a flight Slyngstad took that was paid for by Tangen before the recruiting process. Concerns about the hiring process also arose: The fund had not included Tangen’s name on the short-list of candidates it published.
There were also concerns over Tangen’s background. He founded one of Europe’s most successful hedge fund firms, AKO Capital. The firm has an ongoing case with British tax authorities relating to its incentive schemes, Institutional Investor previously reported.
Norges Bank and Tangen spent several months fending off these concerns by setting up a plan for him to separate himself from personal financial interests, including donating all of his dividends from his stake in AKO to his foundation and placing his wealth in a blind trust.
