Norway’s auditor slams manager fees as ‘reprehensible’

Norway’s Finance Ministry is under fire for huge fees paid to external fund managers of the NOK3 trillion ($478 billion) Government Pension Fund, with the country’s auditor general criticising Norges Bank as “reprehensible” for paying out NOK500 million ($81 million) on a mandate of NOK3.3 billion ($534 million).

Adding fuel to the fire, State Secretary Hilde Singsaas (pictured) appeared to defend central bank Norges’ $81 million payment to Malaysia’s Pheim Asset Management when she said high-quality managers cost money, and that high fees showed managers had earned the world’s second largest fund “far more”.

The Office of the Auditor General said in its report to Norway’s parliament, the Storting, that it “considered reprehensible that Norges Bank entered into a contract with an external manager without determining an upper limit for performance-based remuneration”.

In responding, Singsaas said it was “expensive to engage the best managers” and that “when external managers have [been paid that] much money … the fund has earned far more”.

“Therefore,” she continued, “I have pointed out that it is wrong when the Office of the Auditor General says there is little money left in the Fund (due to) high fees”.

But, at the same time, she agreed that “salary and bonuses in the financial industry in general (are) unreasonably high”.

Auditor General Jorgen Kosmo said, in his 274-page probe of all government spending, that his office was “particularly critical” of certain areas.

“The Ministry of Finance is criticised for inadequate follow-up of the Norwegian central bank, Norges Bank, as regards agreements with external managers,” he said.

He was “highly critical of the fact that Norges Bank signed a contract for profit-dependent external manager’s fees without a maximum limit”.

His report went on to say that “one manager received fees in the order of NOK500 million ($81 million) following re-negotiation of the agreement”.

The original agreement would have meant a fee of about NOK900 million ($145 million).

This was “so large, both in terms of the amount and percentage”, Kosmo said, “that the signed agreement must be deemed to warrant criticism”.

In response to these criticisms, Singsaas said that fee-caps would be considered. “Whether one should introduce a general rule for all fees is a question that will be considered.

“The basis for such an assessment must be what best protects both the fund’s financial interests and the fund’s reputation,” she said.