Norges Bank Investment Management (NMIB), overseer of the $60bn Norwegian petroleum fund, is putting out tenders for assets of $1.2bn using the internet-based IPE-Quest.com. The mandates are part of the sector strategies approach employed by the NBIM equity team.
What’s unusual about the mandates is their open structure. Norges says that money will be “managed in active specialist sector mandates within a broad definition of industrials across all regions”. And although the mandates are active equity with an average tracking error of 5%, NBIM is, in effect, open to suggestions from investment managers.
Says senior portfolio manager Vegard Vik: “We don’t want to tie ourselves too tightly to the FTSE classification so, for instance, a manager could come up with an energy product consisting of oil and gas, electricity and gas distribution which would be across three sectors of the FTSE.”
The benchmark for individual mandates will be based loosely on the FTSE world index sectors and managers are asked to specify the subset of sectors they specialise in. On a geographical question, each appointment will be based on a global or regional classification and again, managers are asked to specify where their strengths lie.
Mandates will typically be over $200m and the number of appointments depends on the type and quality of proposals. Vik says that going on the assumption that they gather an interesting set of offers, they will make five or six appointments.
Last year NBIM put out tenders for telecoms, technology and healthcare/pharmaceuticals mandates. “What we are doing now is broadening that approach into more sectors,” he says. This is likely to be a continuous process and there will be money for other sectors later this year or in 2003.
“We started by awarding regional mandates but we are now moving more towards specialist mandates,” says Vik. “In general we are now moving from more general regional mandates into specialist sector and small cap mandates.” The rationale behind the change in strategy is the growth of the petroleum fund, spurred by continual surpluses in revenues from the country’s oil industry.
Sector strategies are, according to Vik, a good means of defining specific, independent investment patches. “If we have many managers within the same regional mandates we get the kind of situation where they are diluting each other. With specialist independent mandates, we don’t think we get that dilution of alpha by having too many managers doing the same thing.”