World’s largest SWF to become more contrarian and longer-term

The CEO of Norges Bank Investment Management has pledged the $1.6 trillion fund will adhere more closely to the two principles, supported by clarity from Norway’s Ministry of Finance concerning acceptable underperformance.
World’s largest SWF to become more contrarian and longer-term

Norges Bank Investment Management, the $1.6 trillion Norwegian fund, the world’s largest SWF, is to shift its allocation approach to become more contrarian and longer terms, its CEO has said.

Nicolai Tangen, was addressing the annual conference of Norfund, Norway’s $4bn development finance fund, in Oslo, on 23 May.

Asked about what constitutes a successful investment strategy he said: “To be very long term, which we haven’t particularly been, and to be really contrarian, which we haven’t particularly been. But we are working on it.”

Nicolai Tangen

At the end of 2023, Asia accounted for 14.8% of the fund’s investments, with China, its largest Asia allocation, taking 2.1% of total global allocations.

NBIM’s change of approach will not alter its choice to invest in Asia’s emerging markets entirely through external managers, a strategy it has followed in all 35 emerging markets to which it allocates, through 100 external managers.

“You have to work out what you are good at and do that. That’s why we’ve outsourced our investing in emerging markets. It’s so difficult to navigate these areas,” Tangen said.

He also pointed to the complexities of negotiating high levels of government shareholding and the influence of large families. “To stay out of trouble we need local [investment] companies.”


Negotiations between Norway’s SWF and the country’s Ministry of Finance, its sponsor, have clarified acceptable levels of underperformance for the fund, freeing it up to a longer investment horizon, Tangen added.

“I think to know how much [less] than the benchmark I can make before I get the sack because we have [pre-determined] tracking errors,” he said.

He explained that the consultation with Norway’s Ministry of Finance, which has overall responsibility for the fund's operations and has issued guidelines for its management, had introduced precise permissible tracking errors from the performance of the fund’s peers and benchmarks.

This kind of clarity was crucial to promote the same shift in other SWFs, so that investment teams could ride out periods of underperforming the market, Tangen said.  

“You need to have benchmarks, [but] since the [investment] numbers are so big, you’ll lose your job at the wrong time. You must tie people like me to the mast,” he said.

Tangen added that both long-term investing and taking contrarian positions were becoming more challenging, because the mindset of investors was becoming increasingly short-term.

“Long-termism is becoming more and more of a strength with the increase of short-term capital,” he added.  


Asked to identify an example of a contrarian approach he pointed to the fund’s current building up of its allocation to renewables.

“In our sector in 2021 the market was really hot, pension funds [and other institutions] had too little, there was a huge competition for tenders and returns were really low, so we stayed out. Now that returns are higher, we are deploying a bit more capital now,” he said, pointing to the backlash against ESG providing buying opportunities by lowering prices.

He pointed to another recent success the fund had with a contrarian approach to interest rate risk, shortening the fund’s duration risk in 2022.

That made it less susceptible to interest rates rises that followed. “[We] saved a lot of money. It’s not often that you see those really great opportunities,” he said.

Asked to identify future contrarian opportunities he gave an example of one the fund had not yet adopted: “In the real estate market [prices are] really low. In AI and technology probably [they are] really high. Probably, in a five-year view that could be an interesting trade. We haven’t really done it,” he said.


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