For the boss of the Norwegian state investment fund, the world is at the dawn of one of the “biggest changes in 30 years”

Selon le  directeur général de Norges Bank Investment Management, Nicolai Tangen,  (ici photographié le 17 août 2021 lors d

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Nicolai Tangen, the boss of Norway’s state-owned investment fund, the largest in the world with about 1.200 billion euros in asset management, today explained his vision for the near future. And, as the fjords show, the horizon is rather dark. The CEO of Norges Bank Investment Management (formerly “Norwegian Petroleum Fund) is really expecting 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”said before the unicameral legislative assembly of Norway, in Oslo.

Hearing from the Storting (National Assembly) finance committee on the government’s annual report on the management of the “oil fund”, Nicolai Tangen explained to the elected members of the “Storting” (or “grand assembly”) the reasons for the pessimism , the Norwegian business newspaper reports Dagens Naeringsliv (in English “Today’s Business”), third in circulation in the country.

As soon as we started leaving the Covid pandemic behind us, we imagined that everything would return to “normal”, that it shrank even more. “After Covid, which has seriously affected our fund, the invasion of Ukraine by Russia will do the same.”said Nikolai Tangen.

The biggest changes in a generation

In his preliminary written statement to the Norwegian Parliament’s Finance Committee before the hearing, Nicolai Tangen said:

“The geopolitical consequences of the war are difficult to predict, but we are undoubtedly heading for the most important changes in thirty years. »

Clarify:

“There is no doubt that increasing tensions between the superpowers and challenge for globalization will affect markets. »

Inflation / stagflation, Ukraine, de-globalization … the fatal triptych

For Nicolai Tangen, the rise in prices, which had already begun before the outbreak of war in Ukraine, 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 “stagnant inflation” is apparent and has increased in the last six months.

“Stagnant inflation is the worst one can imagine,” he said.

For those who fail the ESG criteria, “there is nowhere to hide”

The Norwegian fund, which invests all its assets in foreign equities and bonds, as well as in real estate markets and renewable energy projects, has no “Nowhere to hide” and must manage the risks associated with its exposure to global markets, Nicolai Tangen continued.

“All this together means that we are heading towards a turbulent period,” he predicted.

For the record, in December 2021, Nicolai Tangen had already developed this idea, insisting on the ESG checks that will become vital, for the planet for sure, but also for the markets: according to the CEO of the largest shareholder in People are saying that life is going to get a lot tougher for companies that fail in the environmental, social and governance testing (ESG) defined by institutional investors.

“Companies that do not conform to the new ESG standards will see their funding run out, insurance companies leave, employees leave, social media shame will intensify and customers will disappear,” he said.

The Norwegian oil-based fund, future leader of ESG?

As head of Norway’s state-owned investment fund, Tangen oversees about $ 1 trillion in shares, which is about 72% of the total portfolio. The rest is in bonds, real estate and renewable energy infrastructure. The 55-year-old former hedge fund boss takes care of the collective savings for Norwegians from the end of 2020.

And he promised the Norwegian government to turn the fund, which was created from the wealth of the country’s fossil fuels, into a global leader in responsible investment (ESG).

-90%: its portfolio of Russian shares has become completely unavailable

The Norwegian state-owned investment fund is currently unable to sell its portfolio of Russian shares because the market for these assets is not working and many companies are on global sanctions lists, the fund’s chief executive, Nicolai Tang, said on Tuesday. . .

The fund he owned Russian shares worth about NOK 27 billion ($ 2.86 billion) at the end of 2021, or 0.2% of its total value, but has since said that the value of these assets has fallen by at least 90%.

The Norwegian fund lost 68 billion euros in the first quarter

However, the return on equity is particularly stable due to the stock market recovery in 2020 and 2021, bringing the fund well above the Norwegian kronor of 12,000 billion.

But in the first quarter of 2022, a big air pocket. Is this a harbinger of these difficult times that Tangen is causing in front of Storting? However, the Central Bank of Norway, which oversees the largest state treasury in the world, said on April 24 that it had lost about 68 billion euros in the first quarter due to economic turmoil, particularly in connection with the war in Ukraine.

Fueled by oil revenues from the Norwegian state, the huge wool sock fell by almost 5% (-4.9%), seeing its value fall to 11.657 billion kroner (1.216 billion euros).

“The first quarter was marked by geopolitical turmoil that affected the markets,” the fund’s number two, Trond Grande, said in a press release.

Analytically, investments in shares, which represent 70.9% of the portfolio, recorded losses of 5.2% during the quarter. Investments in bonds, which account for 26.3% of assets, lost 4.8%. On the contrary, real estate investments (2.7% of the portfolio) recorded gains of 4.1%.

All 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 metro that runs live (below the snapshot of the day) at the Norwegian central bank’s site, the fund weighed in Norwegian kroner 11,721 billion (EUR 1,178 billion), representing K17r 17 2.17 million (EUR 218,321) for each of the Scandinavians’s 5.4 million inhabitants.

Norges Bank Investment Management, counter, Norwegian state investment fund,

You have the trust of the people – that is, the owners of the fund

Facing the Finance Committee, Nicolai Tangen argued that in the end, what mattered most in this situation was the stability of the fund: and 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 focal point, trust. For the managing director of the state treasury, it is essential that the fund management communicates well with the owners – that is, the Norwegian people – in order to maintain their trust.

(with Reuters, AFP, Bloomberg and Dagens Naeringsliv)

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