The CEO of the world’s largest sovereign wealth fund is striving to be more transparent, has a penchant for long-term investing, and takes inspiration from the best ideas of the leaders of the world’s biggest companies, he told Goldman Sachs chief David Solomon.
In a wideranging interview as part of the financial services giant’s “Goldman Sachs Talks” series, Nicolai Tangen, who has just commenced his fifth year as CEO of Norges Bank Investment Management, also addressed concerns over concentration in artificial intelligence companies. NBIM is the in-house manager of the 19.65 trillion Norwegian kroner ($1.76 trillion) Government Pension Fund Global, Oslo.
The wealth fund’s $138 billion in profit in the first half of 2024 was driven by the acceleration of U.S. large-cap technology companies. Tangen addressed concerns around concentration risk, however, among the so-called magnificent seven companies.
“It’s a level of concentration we have never seen before… The big problem here in my mind is that they are all linked into the same geopolitical risk… I think the risk in the public market is probably higher than in the private market now,” Tangen said.
Not that NBIM has a mandate to invest in private companies, beyond its small holding in renewable energy infrastructure and unlisted real estate. Although a process is underway to change that. “The returns could have been higher had we been in private markets, but we are not,” Tangen said.
Regarding transparency, “transparency equals trust,” The fund’s holdings are updated twice every year, outlining its investment positions. It owns about 1.4% of the world’s listed companies.
And transparency is important since the fund “provides more than 20% of the state budget” each year. The fund’s value is updated 13 times per second via a ticker on its website, “and is the most watched number in the country. So everybody is focusing on it,” Tangen said.
Transparency has also coupled with a focus on performance among the 700 or so employees under Tangen. Learning from mistakes is a key focus, and the fund has “created this investment simulator where all the data from every PM (portfolio manager) is up in the cloud, and when you want to make a decision, you get it all fed back to you,” he said. That shows investors’ “weaknesses, all your bad habits… Are you normally selling losers too late, are you selling winners too early? When you trade, you basically get all these signals fed back to you. That’s been a big development which is now starting to change investment behavior.”
There’s also a push on long-term attitudes to investing and “on getting people to be more contrarian in the trades they do.”
“The most difficult thing is to be long term,” he told Solomon. “But it’s very profitable,” he said, referring to compounding of returns of well-performing companies.
Incentives need changing, he added, with portfolio managers currently judged on a three-year rolling basis. “It is difficult to get people not to trade,” Tangen said, but added that NBIM is “probably going to put in a five-year element on the comp, which I think you need to do… (to) get people to take a longer-term view.”
On climate and related investments, Tangen said the fund “care(s) about climate because it is a financial risk,” with commodity prices reflecting changing climate, for example. “I think there are investment opportunities in (renewable energy infrastructure, where the fund has a small holding) that are better than before.”
Solomon also asked Tangen what he had learned from interviewing leaders of companies on his own “In Good Company” podcast — on which Solomon himself has made an appearance. He added that he learns from each leader and takes inspiration from them and lessons. “I try to integrate all the good stuff I learn,” Tangen said.
He's recognized a number of similarities among great CEOs, including grit, energy and curiosity.
And good leadership is also changing. “I think there is more focus on listening skills, there is more on empathy, there is more on generally involving the people you work with in strategy development — I think it makes it easier to execute,” he said, adding that “in the time of AI, (it’s more important) that we lean on what it is that makes us human.”
A great leader, he added, is “stubborn and… able to change your mind. That’s really, really rare.”
He's also observed differences between leaders from the U.S. vs. other parts of the world. “I suspect U.S. leaders are a bit more extrovert, probably take a bit more risks than we do in Europe.”
That’s in line with the problem in Europe in general, he added. “We don’t take enough risks — combined with regulation and so on… But the level of ambition in America is really driving growth.”
The recording took place on Nov. 4, and was published on Goldman Sachs’ website on Dec. 19.
