Managing the world’s biggest sovereign-wealth fund is about to get complicated

Nicolai tangen brings an unusual set of skills to the task of leading the world’s largest sovereign-wealth fund. In addition to a career in finance, the head of Norges Bank Investment Management (nbim), which oversees Norway’s oil fund of $1.4trn, holds degrees in art history, economics and social psychology. Mr Tangen’s public profile and his musings on leadership, decision-making and cross-disciplinary learning have been admired by many Norwegians in his first year on the job. But the task of running Norway’s gargantuan piggy-bank is likely to become only more difficult in coming years.

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A fraught appointment process first thrust Mr Tangen into the limelight. The controversy centred on his potential conflicts of interest with ako Capital, the $20bn hedge fund he founded. After months of heated public debate he transferred his stake in the firm to charity before taking the helm at nbim.

Having paid a hefty price for his job, Mr Tangen is determined to make his mark on the fund. Early in his tenure he announced three priorities: communication, talent development and returns. Mr Tangen communicates far more often with the public and the media than his predecessors, in an effort to make the workings of the fund more transparent. In January nbim began publishing how it would vote at annual shareholder meetings five days ahead of the proceedings. Meanwhile, the publicity generated by his appointment has resulted in a surge in job applications to the fund, says Mr Tangen. He has also hired a sports psychologist in order to bolster his employees’ emotional resilience to the ups and downs of markets.

It is the performance of the fund, however, that matters most. nbim is given an investment mandate and an equities-bonds split by the ministry of finance. Over time the allocation towards stocks has risen to around 70% today (see chart). In return, income streams from the oil fund finance about a quarter of Norway’s annual budget. Performance has held up so far: the fund posted an annual return of 9.4% in the first half of this year (though in the third quarter it gained only 0.1% compared with the previous three months). Since it was established in 1996 the investment pot has delivered, on average, 0.25% of excess returns a year over a benchmark index of global equities and bonds.

[“source=economist”]