Norway’s huge sovereign wealth fund has said the switch to video meetings during the pandemic was more difficult with new external managers than it was with familiar faces, and not a single new investment firm won any of its prized mandates since COVID-19 broke out.
In a letter to the Ministry of Finance, Norges Bank – which runs the Government Pension Fund Global (GPFG) via its subsidiary Norges Bank Investment Management (NBIM) – said: “All new mandates established since the outbreak of the virus have been awarded to managers we had met face-to-face before the outbreak began.”
In the letter signed by Norges Bank Governor and chair of NBIM Øystein Olsen and NBIM chief executive officer Nicolai Tangen, the organisation said staff in its external and internal security selection departments had had to change the way they worked since March this year.
“Our principle has previously been to hold physical meetings with our 90 or so external managers at their offices two to four times a year. This has not been possible since February,” the pair wrote in the report on the operational management of the fund since the outbreak of the coronavirus, which the government had requested in early November.
Because of the crisis, the GPFG’s external managers been followed up using video conferencing, they said, adding that NBIM had opted to meet managers more frequently than before, and that this remote form of communication had worked satisfactorily in this case.
“The use of video conferencing has, however, been more challenging when it comes to first meetings with new managers,” Tangen and Olsen wrote.
Asked how many new mandates had been set up during the pandemic, a spokeswoman for NBIM told IPE this information would be published in the firm’s 2020 annual report.
As well as being asked how it had managed the fund during the coronavirus pandemic, the government also asked Norges Bank to assess the need for analysis and research related to the fund’s investment strategy and present any plans for this.
Norges Bank commented in the letter on the role of fixed income investments in the strategy of the NOK10.8trn (€1.04trn) GPFG, suggesting market developments could have weakened some of the argument for including them in their current form.
In the letter, the bank said its fixed income index had been constructed partly with a view to the fund’s bond investments reducing the volatility of its overall return. But the extent to which bonds could do this depended how much their returns were expected to vary – as well as how correlated bond and equity prices were, it said.
In recent decades, Norges Bank said, equity and bond prices had tended to move in different directions, and even though they moved in sync briefly in March, it said there seemed to be no reason to say the correlation between them had changed.
“What we can say with greater certainty is that persistently very low interest rates will make bond returns less volatile,” Tangen and Olsen wrote in the letter, adding that: “When volatility is low, the diversification gains for the fund from investing in bonds will be smaller than they would otherwise be.”
They said Norges Bank planned to look more closely at how equities and bonds would behave if bond yields stayed around zero, and the extent to which bond investments would reduce volatility in the overall portfolio in the future.