Norges Bank Investment Management (NBIM) published its new multi-year strategy plan for running Norway’s NOK21trn (€1.8trn) Government Pension Fund Global (GPFG) today – two days after a pair of government-commissioned academics singled out the Oslo-based manager’s lasting underweight to equities for criticism.
On the release of the “Strategy 28” document, Nicolai Tangen, NBIM chief executive officer, said: “The strategy sets out how we will work to become the best and most respected large investment fund in the world. We look forward to putting it into action over the next three years.”
The central government department said the new strategy was built on its revised plan for 2023-25 and took the GPFG’s “unique attributes” as its starting point – its long-term investment horizon, scale, people and culture as well as technology and data.
In terms of investment strategy, the main change in the new plan appears to be measures to address the underperformance of NBIM’s real estate investments over the past few years – ideas outlined in Norges Bank’s letter to the Finance Ministry a month ago, and detailed in IPE Real Assets’ interview with NBIM’s new global head of real estate Alex Knapp today.
NBIM said its real estate strategy would evolve from a combined strategy of unlisted and listed property investments, to one that fully integrated the two types, while in unlisted markets it would continue to invest in offices and logistics but gradually invest more in newer and higher growth sectors.
It also said it would invest more through indirect structures “to get access to specialised strategies and operational capacity”.
NBIM also said in Strategy 28 that it would expand its unlisted renewable-energy infrastructure portfolio in the next few years to include a broader set of technologies and geographies, and gradually invest in more through indirect structures.
The strategy document comes two days after the Finance Ministry published the report into the SWF’s active management it commissioned this summer from Trond Døskeland and André Wattø Sjuve, professor and associate professor, respectively, at NHH Norwegian School of Economics in Bergen.
The academics praised Norges Bank’s active management of the GPFG for having created “substantial value for the Norwegian people”, with active decisions having contributed, since 1998, to average annual active returns of 0.27% before costs, and 0.19% after costs.
However, they said the main challenges were in two areas – top-down allocation decisions and the underperformance of real estate.
“First, top-down allocation decisions, such as maintaining a lower share of equities, have reduced returns and are difficult to justify given the fund’s structural advantages as a long-term investor.”
“Second, the real estate portfolio has underperformed relative to both its funding benchmark and the broader property market,” Døskeland and Wattø Sjuve noted in the report.
They also said their evaluation indicated that the current funding model may encourage a short-term perspective.
Within active strategies, the academics said two areas stood out as clear successes for the SWF – its market exposure strategy, which included positioning around market events, and securities lending, with NBIM’s security selection strategy also having created significant value.
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