Nicolai Tangen, the boss of the Norwegian sovereign wealth fund, the largest in the world with some 1,200 billion euros in assets under management, today explained his vision for the near future. And, seen from the fjords, the horizon is rather dark. The CEO of Norges Bank Investment Management (ex-“Norwegian Petroleum Fund) indeed expects difficult market conditions due to the evolution of the geopolitical situation and inflation:
“The probability of a horror scenario where the fund falls by 40% has increased”he declared before the unicameral legislative assembly of Norway, in Oslo.
Heard by the finance committee of the Storting (the national assembly) for the government’s annual report on the management of the “petroleum fund”, Nicolai Tangen explained to the elected members of the “Storting” (or “grand assembly”) the reasons for his pessimism, reports the Norwegian business daily Today’s business (in English “Today’s Business”), third in the country by circulation.
“No sooner had we started to put the Covid pandemic behind us by imagining that everything would return to “normal”, that it shrunk even further. After the Covid which has severely affected our fund, the invasion of Ukraine by Russia will do the same”a dit Nicolai Tangen.
The biggest changes in a generation
In his preliminary written statement to the Norwegian Parliament’s Finance Committee ahead of his hearing, Nicolai Tangen said:
“The geopolitical consequences of war are difficult to predict but we are undoubtedly heading towards the most important changes for thirty years. »
He specified:
“There is little doubt that the rising tensions between the superpowers and the challenge to globalization will affect the markets. »
Inflation/stagflation, Ukraine, de-globalization… the fatal triptych
For Nicolai Tangen, the rise in prices, already well underway before the outbreak of the war in Ukraine, has continued to accelerate while interest rates are very low and stock prices remain high.
But there is worse than inflation: with high inflation and weak economic growth, the risk of “stagflation” is looming, and it has increased over the past six months.
“Stagflation is the worst imaginable,” he said.
For those who fail ESG criteria, “there is ‘nowhere to hide’
The Norwegian fund, which invests all of its assets in foreign stocks and bonds, as well as in real estate markets and renewable energy projects, has not “nowhere to hide” and must manage the risks associated with its exposure to global markets, continued Nicolai Tangen.
“All of this put together means that we are heading for a turbulent period,” he predicted.
For the record, in December 2021, Nicolai Tangen had already developed this idea, insisting on the ESG imperatives which will become vital, for the planet for sure, but also for the markets: according to the managing director of the largest owner of shares in the world says, life is regarding to get much tougher for companies that fail the environmental, social and governance (ESG) tests set by institutional investors.
“Companies that don’t adapt to the new ESG standards will see their funding dry up, insurance companies leave, employees quit, social media shaming will intensify and customers will disappear,” he said. he stated in an interview, reports Bloomberg.
The Norwegian fund, built on oil, future leader of ESG?
As head of Norway’s sovereign wealth fund, Tangen oversees around $1 trillion in stocks, which is regarding 72% of the total portfolio. The rest is in bonds, real estate and renewable energy infrastructure. The 55-year-old former hedge fund boss has been taking care of collective savings for Norwegians since the end of 2020.
And he promised the Norwegian government to transform the fund, which was built from the country’s fossil fuel wealth, into a global leader in responsible investing (ESG).
-90%: his portfolio of Russian stocks has become totally unsaleable
The Norwegian sovereign wealth fund is currently unable to sell its portfolio of Russian stocks because the market for these assets is not functioning and many companies are on global sanctions lists, the fund’s CEO, Nicolai Tangen, said on Tuesday. . .
The fund held russian stocks worth some 27 billion Norwegian kroner ($2.86 billion) at the end of 2021, or 0.2% of its total value, but has since said the value of these assets has fallen by at least 90%.
The Norwegian fund lost 68 billion euros in the 1st quarter
However, the fund’s performance is particularly solid due to the recovery of the stock markets in 2020 and 2021, bringing the fund well above 12,000 billion Norwegian kroner.
But, in the first quarter of 2022, a big air pocket. Is this a harbinger of these difficult times evoked by Tangen in front of the Storting? Still, the Central Bank of Norway, which oversees the largest sovereign fund on the planet, indicated on April 24 that it had suffered a loss of some 68 billion euros in the first quarter due to the turbulence financial issues linked in particular to the war in Ukraine.
Fueled by oil revenues from the Norwegian state, the enormous woolen stocking fell by almost 5% (-4.9%), seeing its value fall to 11.657 billion crowns (1.216 billion euros).
“The first quarter was characterized by geopolitical unrest which affected the markets”, explained the number two of the fund, Trond Grande, quoted in a press release.
In detail, investments in equities, which represent 70.9% of the portfolio, lost 5.2% during the quarter. And bond investments, which constitute 26.3% of assets, lost 4.8%. On the other hand, investments in real estate (2.7% of the portfolio) gained 4.1%.
All of these investments are made outside Norwaythe largest exporter of hydrocarbons in Western Europe, so as not to overheat the national economy.
This Tuesday, May 3, according to the meter that runs live (below screenshot of the day) on the site of the Norwegian central bank, the fund weighed 11.721 billion Norwegian crowns (1.178 billion euros), which represents 2.17 million crowns (218.321 euros) for each of the 5.4 million inhabitants of the country Scandinavian.
Have the trust of the people – that is, the owners of the fund
Faced with the Finance Committee, Nicolai Tangen maintained that in the end, what mattered most in this situation was the solidity of the fund: and very fortunately, he assured, the Norwegian pension fund has sufficient resources to manage this uncertainty and risk, even if it is more difficult to make money in times of sudden fluctuations.
Finally, the last central point, trust. For the CEO of the sovereign fund, it is necessary that the management of the fund communicates well with the owners – that is to say the Norwegian people – to maintain confidence.
(with Archyde.com, AFP, Bloomberg and the Today’s business)
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