Transparency is key to building trust according to executives at Norges Bank and the United Nations Staff Pension Fund. They discussed the benefits, and limitations of transparency at the Fiduciary Investors Symposium at the University of Oxford.
The Government Pension Fund Global, the giant Norwegian sovereign wealth fund, achieved a perfect score of 100 in this year’s Global Pension Transparency Benchmark (GPTB). the score improvement was deliberate and considered, and involved executives from the fund lobbying the Ministry of Finance to be more diligent on disclosures that impacted the fund’s governance rating, including board effectiveness reviews.
Frederick Willumsen, global head of strategy and research for Norges Bank Investment Management, who advises the executive board and finance ministry on investment strategy, said the actions demonstrate how important transparency is to the fund.
“In one sense we have one client, the Ministry of Finance; but in another sense, we have five and a half million clients, the people of Norway,” Willumsen said at the Fiduciary Investors Symposium at the University of Oxford.
Norges Bank conducts a reputation survey every second year which shows a clear link between what people know about the fund and whether they trust the management of the fund.
“So for us it’s really important that people know what we are doing, they know the organization, the investment strategy and so on, because we really think that is a way of building trust in what we are doing,” Willumsen said.
“And asset management is a trust business, right? You really need trust. That’s the key thing. I can basically talk about anything we do, because it’s probably in the public domain already. So, transparency is really key for us, because that is the link to building knowledge and trust in what we do, that is the most important part of why we care about transparency.”
Unlike some sovereign wealth funds that don’t disclosure their AUM, Norges Bank publishes its AUM online, and updates the value 13 times a second.
Norges has somewhat of a complicated governance structure that includes delegation from the Parliament and the Ministry of Finance.
In the past year Norway’s SWF improved its governance score on the GPTB by deliberately negotiating with the Ministry of Finance to change some disclosures including criteria for appointing board members, compensation principles and board effectiveness reviews.
“Our board and the Ministry of Finance really care about transparency as much as we do, and hence they were very keen to change that,” Willumsen said.
The Global Pension Transparency Benchmark, a collaboration between Top1000funds.com and CEM Benchmarking, is now in its fourth year, It measures the transparency of disclosure across the four factors of cost, governance, performance and responsible investment of the five largest pension funds in 15 countries.
In 2023, 77 per cent of funds improved their transparency, and this year the figure was 69 per cent. So, the benchmark is having an impact on increasing transparency across the industry, one of its intentions from the outset.
David Jennings, director, client coverage Nordics and UK for CEM Benchmarking, said Norway had shown leadership by prioritising transparency and actively improving their score.
“Transparency definitely requires leadership, and I don’t think funds should just wait for regulation to happen. That’s been very clear with, with Norges. That’s been clear with the Canadians,” he said. “Sometimes it is a bit of a risk. And I think it does invite scrutiny, but that’s not a bad thing.”
Jennings pointed to the fact that this year nine of the top-scoring funds scored better than the top-scoring fund last year.
“There’s been a concerted effort across pretty much all funds to improve their transparency. But it’s really been the top-ranked funds who have been improving the most.”
A transparency journey
The United Nations Staff Pension Fund is not officially ranked as part of the Global Pension Transparency Benchmark, but it has voluntarily measured its own transparency using the publicly available survey that underpins the GPTB.
Pedro Guazo, General Secretary Antonio Guterres’ representative for the investments of the assets of the United Nations Joint Staff pension fund, takes transparency incredibly seriously.
When Guazo started as head of investments five years ago there were two websites for the fund: one for investments, and one for pension administration.
“When Rosemarie [McLean] and I joined five years ago we were in the middle of a severe crisis of confidence. The trust from our stakeholders was not there, and mainly because of lack of transparency,” he said.
“We made a pact back then to start sending a message as one fund. Because it doesn’t matter the reporting lines, you have one fund. So we started with having just one website and trying to put as much information that we consider relevant throughout the first couple of years. So it worked out. We started improving the trust with all our stakeholders until the moment that I saw it arrive into my email… that analysis from Top1000funds.com on transparency.”
Guazo said “being a numbers person” he wanted to do a shadow rating to see whether the fund’s work on transparency had paid off.
“And we almost died, because we got 45 points out of 100,” he said.
“We realised there was a lot of work to do. So we put together a taskforce with people from both sides, investments, back office, everybody, just to work and make a gap analysis.”
The fund moved from a rating of 45 to 75 in the first year, and in particular has improved the disclosure of board and committee member qualifications, and costs.
“The story is very nice. The trust is really good,” he said.
The limits of transparency
Both panellists said that while transparency is beneficial, especially because it builds trust, there are limits.
The UNJSPF said that in its case, it is not relevant for the fund to disclose all its investment holdings.
“We’re not disclosing all the transactions… and we have made a conscious decision that we will probably never reach 100 per cent based on the current methodology,” Guazo said.
Norges Bank does provide full portfolio look-through. All its holdings are updated twice a year and go back more than 25 years.
“If you go to our web page you can literally go back to 1998 and you can see every year all of the holdings down to the company level, the address level when it comes to unlisted real estate, every single bond, everything,” Willumsen said.
The fund operates within the mandate it has been given by the Ministry of Finance and that includes investments that may be criticised, such as holdings in Israel.
“This is a big topic in Norway, the conflict in Gaza. We are operating within the mandate that we have been given by the Ministry of Finance. Any decision to not invest in Israel will need to be a political decision made by the correct authorities, not by us.”
