Norway Wealth Fund to Hand $60 Billion to External Managers

Norway’s $1.2 trillion sovereign wealth fund, the world’s biggest, is raising the cap on external managers after its new chief executive officer made clear he wants more outsiders to help oversee investments.

Starting next year, the Oslo-based fund plans to have external managers, including hedge funds, handle up to 5% of its portfolio, equivalent to just over $60 billion. That compares with 3.9% at the end of 2019, and about 4.4% in late October.

Nicolai Tangen, the fund’s 54-year-old CEO since September and a former hedge fund manager, told Bloomberg earlier this year he’s keen to step up reliance on external managers because he thinks it’s a strategy that can “generate a significant surplus return.” That view has now shaped policy at the fund.

“We get back much more from external asset managers than we have paid for their services,” Jon Nicolaisen, a deputy governor of Norway’s central bank, which manages the fund, said in a speech on Thursday.

The wealth fund declined to comment on whether the new allocation limit will make room for short trading strategies, which it has so far avoided.

“We will have to come back to the details at a later stage when this has been decided on,” spokeswoman Line Aaltvedt said in an email.

Excess Returns

The fund estimates that external managers brought in cumulative excess returns, after costs, of 48 billion kroner ($5.3 billion) in the period through to 2019. Nicolaisen said the strategy is particularly useful in emerging markets.

“The results have exceeded expectations,” Nicolaisen said. “At the same time, these investments spread the fund’s risk across more markets.”

External managers are expected to take responsible investment into account when working for the Norwegian wealth fund. “All aspects of the activities of these managers are evaluated to ensure that they meet our requirements and expectations,” he said.

External asset managers “also help the fund to steer clear of problematic business models and companies and sectors with weak ownership structures,” Nicolaisen said. “It would have been difficult to achieve without local knowledge.”

©2020 Bloomberg L.P.

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