Who is Trond Grande, you ask? Well, he is perhaps the most knowledgeable individual in the world when it comes to the internal operations and strategies of Norway’s $550 billion sovereign fund. He is currently the Deputy CEO and Chief of Staff of Norges Bank Investment Management. And, previously, he was the fund’s Chief Risk Officer and Deputy COO. So if you want to learn something about the NBIM, this is the guy you need to talk to. And, lucky for us, Rupert Wright of The National did just that. So, without further ado, here are some ‘deep thoughts’ by Trond Grande:
On the rise of the Norwegian SWF: “You could say it all began for Norway when Phillips Petroleum found oil on Christmas Eve 1969; they had been drilling without success since the mid-1960s. The [border] line was drawn and much of the oil ended up on the Norwegian side. Throughout 1970s and 1980s most of the revenue was reinvested in the oil business. By the mid-1980s we realised the revenues might outweigh the investments and we might have net positive cash flow from these activities and it might even be so substantial we should try to set something aside, the idea being that these are fields that have been there for millions and millions of years and even though we are the generation that struck oil we shouldn’t be the only ones to benefit. This idea for future generations came up, but also to save the economy from the classic “Dutch disease” of overheating. In 1991 the government passed a law to create a pension fund and in 1996 the first money came into the fund, 2bn a Norwegian krone (Dh1.36bn).
On the shifting investment strategies: ”The question was: where do you put this money? There wasn’t an investment strategy; they just put it in foreign government bonds and that expertise was in the central bank, which partly explains why we are here. Decision was taken to invest outside Norway and Norwegian currencies. In 1998 decision was taken to go into equities. A gradual expansion took place in small and medium-size companies, emerging markets, corporate bonds etc…We lean on the same classification as the FTSE. Not in frontier or African markets, but in developed and emerging markets, 47 different countries…In 2004 we moved to being a responsible investor – our goals are purely financial long term, but we take our investments on the premise that companies that are responsive to certain issues such as climate change and water management, we single them out as focus areas. When we invest we have a series of principles…By 2007 a decision was taken to increase equities from 40 to 60 per cent. As markets were falling, we were buying. About two thirds of equities we hold were bought during the crisis…[W]e are now allowed to invest 5 per cent in real estate. We now have 60 per cent in equities, 35 per cent in bonds and 5 per cent in real estate. It’s our first venture into non-listed or private investment space. Everything else is public in well-regulated markets and exchange traded. We follow benchmarks decided by the finance ministry.
On the benefit from transparency: ”Benefit creates legitimacy of the fund for the Norwegian people. It’s a one-way street, once you say what you’re doing, it’s hard to backtrack. Are we too transparent? I don’t think so but we are getting close. We are balancing that.”
On the Financial Crisis: ”2007 was a zero year. 2008 fund returned minus 23.4 per cent. That was a big loss. This caused a lot of debate. We were selling bonds to buy more equities, because that was part of our new strategy…I wouldn’t say it was calm. There was a lot of debate, culminated in March ’09, that was the bottom. March 11 annual report was released, lots of debate. There was a lot of criticism and suggestion that we sell equities and at least stop buying more. Having been through that stress test we are much stronger now. Because we are a long-term investor we can withstand short-term fluctuations. It could have been the end of the world, all the companies could have gone bust, but it wasn’t likely that would happen.”
Quite a fascinating interview. Kudos to The National (and NBIM) for making it happen.