The CEO running the world's largest sovereign wealth fund believes executives should build on its use of external managers.
The 10.6 trillion Norwegian kroner ($1.13 trillion) Government Pension Fund Global, Oslo, has benefit from increased profits and the avoidance of companies with reputational risk through its use of external managers, Nicolai Tangen, CEO, said in an introductory statement to parliament, published Friday on the fund's website. The statement was made ahead of an annual hearing on the management of the fund with the parliament's standing committee of finance and economic affairs.
The fund gains more from its external managers than it pays for their services, something he believes the fund "should build on further," Mr. Tangen told lawmakers.
External equity managers have contributed more than 60 billion kroner in net excess returns, Mr. Tangen said, though he did not specify an investment period.
The fund outsources investment allocations to equity managers with expertise in specific markets, according to its website. "The mandates are in markets and segments where it is not expedient to build internal expertise and the potential for excess returns is considerable," it said. These allocations typically cover emerging markets and developed markets small-cap companies.
As of Dec. 31, 389 billion kroner, equating to 3.9% of assets, was run by external managers, up 20.8% from the start of 2019, the website said. Assets were run across 83 allocations and 74 money managers, including 66 country-specific investments in emerging and frontier equity markets and 17 country-specific allocations to developed markets small-cap funds, according to the fund's website.
About a year ago, executives were permitted to invest in unlisted infrastructure for renewable energy. Norges Bank Investment Management, the in-house manager, created a group specializing in the investments "and we are ready to carry out investments in a professional manner," Mr. Tangen said.
However, pricing in the asset class has not always been attractive as many investors are looking at unlisted infrastructure and finding projects that meet GPFG's risk/return requirements "may be demanding," he said.
ESG principles were also addressed, with Mr. Tangen noting that the fund is focusing on tax and transparency. GPFG executives recently divested from companies with weak or no reporting related to tax and transparency, he said. NBIM has also voted on about 115,000 matters at almost 12,000 annual general meetings in 2020.
Looking forward, Mr. Tangen said he has three priorities: return, communication and talent development. GPFG will continue to strive for the highest return possible and will also continue to be transparent about the management of the fund.
Regarding talent development, Mr. Tangen wants to "develop the GPFG into a more diverse and colorful organization," he said. "I think this will result in more creativity, a more dynamic workplace. And this is what we need to make use of the opportunities to generate returns ahead."