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Norway’s largest fund rejects passive management

Yngve SlyngstadA complete evaluation of active management including reports by Mercer and an international group of professors, has resulted in the Norges Bank Investment Management, manager of the $375 billion Government Pension Fund-Global, staunchly favouring active management, with the bank’s Governor and executive director of the NBIM describing “a passive, uninformed approach to operational decisions is an alternative without a sound theoretical or practical justification”.


In a letter to Norway’s Ministry of Finance the governor of Norges Bank, Svein Gjedrem, and executive director of NBIM, Yngve Slyngstad, said after 12 years of active management the experience has been largely positive with the annualised excess return relative to the benchmark portfolio currently standing at 0.22 per cent.

“This performance confirms that active management can make an important contribution to the overall return on the fund over time,” the letter said.

“Our organisation of active investment decisions has been based on a high degree of specialisation and diversification within a structure with delegated authority. We consider this to be essential for a manager hoping to succeed with active investment decisions based on analysis of companies and securities.”

The letter conceded in a passive approach that direct costs would be lower but the fund would not be able to match the return on the benchmark portfolio.

“As a result, Norges Bank cannot recommend a passive strategy for the management of the fund.”

Mercer and an international group consisting of Professors Andrew Ang, Columbia Business School, Stephen Schaefer, London Business School and William N. Goetzmann, Yale School of Management prepared reports on the use of active management of the Government Pension Fund Global.

The ministry will hold a seminar on January 20 to discuss the reports and a panel of independent experts are invited to comment on the reports.

The Mercer report, which includes a survey of the use and performance of active management in other funds is in the analysis section of www.top1000funds.com

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