Norway’s Standard-Setting Sovereign Fund Stumbles

The public acknowledgement of poor performance reflects Norway’s leadership in transparency.

North Sea oil drilling.

Norway’s sovereign wealth fund—officially The Norges Bank Investment Management, or NBIM—took a whopping financial hit in the first half of 2022, totaling $174 billion. The losses, unprecedented for both the Norwegian fund and the sovereign financial sector, have significant implications. Long a star performer and the world’s largest sovereign wealth fund, NBIM is a standard-setter that many investment managers follow.

Underpinned by Norway’s oil and gas revenue, the Norwegian fund famously developed a sophisticated approach to investment management with a strong eye toward diversification. It was one of the first sovereign institutions to invest in alternative assets, such as global real estate and venture capital, which brought high returns in previous years. Indeed, due to its geographical and asset diversification, along with its size, NBIM owns shares in most companies worldwide. The fund had total assets of around $1.2 trillion at the beginning of the last quarter.

The recent losses are due to various disruptions in equities and tech markets, including geopolitical tensions, the war in Ukraine, decline in public markets, lower valuations in private markets and inflationary pressures. The fund thrived under low interest rates and a very strong environment for equities, a significant part of NBIM’s portfolio.

The rising role of sovereign funds as leading shareholders of public and private assets in the global economy has brought the funds and their performance to the center stage. China’s Silk Road Fund, for example, announced recently a $3 billion investment in Indonesia’s sovereign fund, using the new economic environment to build new economic and geopolitical bridges.

The public acknowledgement of poor performance reflects Norway’s leadership in transparency. Many sovereign funds do not disclose information to avoid clashes with legislators and citizens. Norwegian legislators created a strong governance structure that mandates timely information-sharing with government, supervision bodies and the public, to ensure accountability and improve the management performance of the sovereign fund. Up until recently, that delivered outstanding results.