Norway Pension Giant Seeks To Remove ‘Rotten Apples’ From Portfolio

Norges Bank Investment Management CEO Nicolai Tangen said it is becoming increasingly important to weed out what he calls the “rotten apples” in Norway’s sovereign wealth fund’s $1.4 trillion portfolio.

Tangen acknowledged at a hearing before Norway’s Parliament last week that the Government Pension Fund Global “lost a considerable sum” as a result of the Silicon Valley Bank failure. However, he has vowed to reduce the likelihood of a similar loss and said more resources need to go into finding the “rotten apples,” which he defines as companies whose state of health is not quite what it appears.

“I think it’s more important than ever to remember the secrets of the fund’s success: active ownership, a long-term approach, broad political support for the management model and healthy, thorough processes before any changes,” Tangen said in prepared remarks. “This creates predictability.”

Tangen said the pension giant has hired sports psychology experts to improve its investment decision making. One of the most important lessons the fund has learned from the sports psychology experts, he said, is to focus on putting more emphasis on things the funds managers can do something about, rather than things over which they have no control.

“Just as a ski jumper can do little about the weather and the wind, there is little we can do about crises and turmoil out there in the world and in the markets,” Tangen said. “Instead, we’re trying to put as much energy as possible into things we actually can improve.”

Tangen said that despite “a year of mainly negative numbers,” the pension fund managed to produce an excess return of approximately $11.1 billion in 2022. He said that while that may not be much, considering the size of the fund, “it’s still one and a half times Norway’s defense budget, and it’s a direct consequence of my colleagues putting their energy into the things they can do something about.”

He said the fund can save money if it manages to seek out and find the “rotten apples” early enough. As an example, Tangen noted that a report from short seller Hindenburg Research in January accusing the Adani Group of corruption led to a sharp drop in the share prices for companies owned by the Indian conglomerate. The fund previously had holdings in several Adani Group firms, but he said it had already sold down its holdings in the companies before the report came out and escaped most of the losses.

“The background to our sell-down was a series of analyses we’ve been doing in recent years—investigations and decisions that our people make to reduce the fund’s risk,” Tangen said. “That’s active management. We’ll never be able to spot all of the ‘rotten apples,’ but we can try to find as many as we can.”