Norges Bank


Tangen: Norges Bank’s management of the Government Pension Fund Global

Introductory statement by Norges Bank Investment Management CEO Nicolai Tangen at the hearing of the Standing Committee on Finance and Economic Affairs of the Storting (Norwegian parliament) on 30 April 2024.

Translated from Norwegian for information purposes only. Please note that the text below may differ from the actual address.

Thank you, Ida, and thank you for the opportunity to address the Storting’s Standing Committee on Finance and Economic Affairs.

This year, 2024, will be marked by significant commemorations. Two of these took place in February. One was the celebration of 30 years since the Winter Olympics in Lillehammer – an Olympic Games few believed we would host or successfully organise. But we did, and with great success.

The other commemoration was the 50th anniversary of White Paper no. 25 (1973–1974), Petroleum activity and its position in the Norwegian society. This laid the foundation for our discussion on this White Paper here today.

In an interview with the Norwegian Broadcasting Corporation (NRK) this February, Arne Fossmo, Mayor of Ringebu municipality, said, “The Olympics are certainly worth celebrating. After all, what would Ringebu be today without the downhill course at Kvitfjell and all that has happened here since it was created?”

And somewhat like Ringebu, I believe we can ponder what Norway would have been like without that White Paper and its impact on everything that followed. I actually have it framed in my office.

The CEO’s letters in the fund’s annual reports for 2022 and 2023 feature headings with alliteration as we moved from a turbulent year to a tremendous year.

Strictly speaking, 2023 was no less turbulent than the year before, but I’ll come back to that. While 2022 showed red numbers, last year’s return was more than NOK 2,200 billion. By year end, the fund was worth NOK 15,700 billion.

In 2023, the fund’s return was NOK 26 billion less than its benchmark index. It was primarily the investments in unlisted real estate that impacted the relative return last year. Real estate returns are measured against the returns we could have obtained by investing in bonds and equities. In 2023, real estate returns were weak, while returns on bonds and equities were strong.

This increase has continued into 2024, and in the first quarter, the value of the fund increased by nearly NOK 2,000 billion, of which returns accounted for more than NOK 1,200 billion. In one quarter alone.

Developments in 2023 were largely due to a comeback in the technology sector – specifically, “the magnificent seven”, a nickname for the seven most valuable companies in the world – Meta, Alphabet, Amazon, Apple, Tesla, Nvidia and Microsoft. The developments have been extraordinary, but after such an upswing, it’s worth noting the risks. These seven companies now constitute 12 percent of the benchmark index, posing a concentration risk unlike any we’ve seen before.

And the keyword for the extraordinary returns we’ve seen in the technology sector is artificial intelligence. One of these companies, Microsoft, is now investing USD 100 billion in developing computing power for artificial intelligence. Sam Altman at OpenAI has said that the next-generation ChatGPT will be 100 times more advanced than the version we have today. And the version after that will be 100 times more advanced again. Developments in this sector are moving at a very fast pace.

Why? Because the brightest minds, combined with limitless capital, are diving headfirst into this – right now.

In the fund, we’re naturally using artificial intelligence ourselves, and we’re constantly looking for new opportunities to streamline our work. During last year’s public consultation, I mentioned that my talented hairdresser, Gro, believed that “technology is here to stay”. The other day I asked her what she thinks about artificial intelligence, to which she promptly replied: “I’m not afraid that machines will take over. Because no machine could ever talk as much as I do.”

I think that’s a good point. Yes, artificial intelligence represents a technological revolution, and we’ve barely touched upon what this could become. At the same time, we must lean on what is unique to us as humans, such as cooperation and empathy, to name a few.

In 2020, the fund’s mandate was changed to include unlisted infrastructure. Since then, we’ve gradually developed these types of investments. We’ve seen a strong demand for green projects and high pricing. Through 2023 and into 2024, this has changed somewhat, and we invested in several solar and wind power projects.

Ida has already mentioned the Sverdrup Commission’s report. The committee has highlighted some significant international trends: global demographic changes are shifting the distribution of economic power; climate risk affects economic development; technological development is changing business models; and, not least, the world is becoming more divided.

The geopolitical impact on the markets is having consequences that we’ve never previously witnessed in the fund’s lifetime. And a technological race between the major global economies is a crucial part of this.

The fund has seen 30 years of fairly stable and integrated global markets. We’ve never experienced major shifts in these framework conditions. The fund has gone through a dot-com boom, a financial crisis and the COVID-19 pandemic, all of which created great turmoil in the markets, but we’ve never seen a longer and more persistent downturn. We must be prepared for such an eventuality.

The night of Monday 15 September 2008 was an unforgettable night in our offices. Lehman Brothers had just gone under, and what we now know as the financial crisis began.

At that time, my co-pilot and Chief of Staff in the fund, Trond Grande, had just started as head of the fund’s risk management department. The department comprised four people. It’s fair to say that these people faced significant challenges in the weeks and months to come.

Subsequently, significant investments were made in developing expertise in risk management. Today, we have a highly competent risk management team with over fifty employees who provide analyses to support all our investment areas.

Risk analysis is about looking at an uncertain future, based on experience and historical data. It’s only natural that we’re now increasing our competence and focus on new and different elements of risk.

The Government Pension Fund Global must be a responsible owner. This is key to both the legitimacy of the fund and to future returns. Dialogue with companies lies at the core of our ownership work. As a long-term investor, it is in our financial interest that companies are run as efficiently as possible, in well-functioning markets.

In 2023, we held around 3,300 meetings with companies we own.
We voted on more than 115,000 proposals at over 11,000 shareholder meetings and we made 86 risk-based divestments. We used our entire toolbox, and we used it actively. So the question is, does it work?

We are a major investor, but still a minority owner. We need other actors to effect change. A while back, we started announcing in advance how we intended to vote at shareholder meetings. Analyses suggest that this has had an effect and that we have tripled our voting power through other investors following our lead. Our voting is possibly our most important means of influence.

In 2017, we issued a position paper on CEO remuneration in which we discussed how the pay structure for top executives should be formulated in order to achieve the best possible corporate governance, emphasising three key principles: simplicity, long-term focus and transparency.

In its 2023 annual report, Amazon cited our position paper three times, stating that our principles had been used in the development of the company’s salary and compensation system.

We also take a keen interest in skilled and effective boards of directors. Greater board diversity is a crucial part of this. For several years, we have voted against boards that have low female representation and have focused particularly on boards in Japan, which is a developed market with traditionally low female representation on boards. In the Japanese market, efforts to include more women on boards have begun to yield results.

The goal of the fund is for the companies in which we invest to align their activities with the Paris Agreement and to set credible goals and plans to reduce their greenhouse gas emissions. More and more companies are setting net-zero emission targets. In 2023, we saw that nearly 70 percent of financed emissions had a goal of net-zero emissions by 2050. This is up from around 30 percent in 2020.

These are just a few examples. Ownership work is a marathon, not a sprint, and we believe that our method of exercising ownership is what will generate financial results in the long term.

During last year’s public consultation, I promised that we would surpass the Canadians in terms of transparency. They were the only ones ahead of us on the Global Pension Transparency Benchmark. We have achieved this. We are now number one and will work hard to continue to be transparent, though it isn’t always easy. One may not always get it right, as we saw last week, but we promise to keep a strong focus on transparency.

In 1873, Danish businessman Philip W. Heyman founded Tuborg. These days, alcohol advertising is not allowed in Norway, so I’d better be careful about what I say here. But I would mention that their products still bear a slogan that Heyman introduced 150 years ago: “Standing still is going backwards”.

That’s exactly the kind of approach we try to adopt in the fund. Because it’s tempting to hit the pause button and think that we’ve arrived where we’re supposed to be.

But the world around us never stands still. It is constantly in motion. So if we stand still, we’re not actually standing still, we’re moving backwards. And we’d rather be at the forefront. Because that’s where the returns are to be found.

Our goal is to be one of the world’s best capital management environments. We will constantly strive to develop ourselves. Every day, we work to fulfil the mandate from our owner, the Norwegian Ministry of Finance, and we take the responsibility our elected representatives have given us very seriously.

I can say with all due modesty that I believe my colleagues are among the very best in the world, and that we’re very proud to go to work every day to make money for the Norwegian people.

Thank you.

Published 30 April 2024 10:20
Published 30 April 2024 10:20