Behind Norges’ search for pure alpha

Norges Bank Investment Management (NBIM) is tipping the US stock market will continue to outperform Europe in the next two decades, despite a cautious attitude among allocators toward US assets post-Liberation Day.  

“I’m positive for Europe over the next three years,” Paul Marcussen, head of NBIM’s New York office, told delegates at the Top1000funds.com Fiduciary Investors Symposium. “We don’t give official market outlooks. But if I want to bet on the US versus Europe over the next 20 years, my money would be in the US. It has the innovation, it has the creativity, it has the willingness to let people fail and pick themselves up and try again, which we don’t have in Europe.” 

Marcussen is lead portfolio manager in the sovereign wealth fund’s external active equities team which allocates $90 billion to a roster of 110 managers. He personally is responsible for $15 billion. 

As a mammoth fund with $1.8 trillion in assets under management, most of NBIM’s listed equity – which accounts for 71 per cent of the total AUM – is passively invested. It owns 8,500 stocks and about 1.5 per cent of all listed equities. But the fund has carved out an active allocation of around 5 per cent for external managers.  

Because the fund is looking to add pure alpha, it has a different approach to funding the external mandates, essentially sourcing it from the passive portfolio. 

“If we want to fund a manager in, for example, healthcare, we go to the index team as a source of the funding and the country, sector, market cap segment and beta can all be adjusted for from the passively managed portion of the fund. So then when the active manager is funded, there is no sector bet. All the fund is buying is alpha,” he said. “So what is left in the beta portfolio is like a Swiss cheese with like pockets taken out and they run a completion portfolio for the remaining parts.” 

An extraordinarily lean team of only eight manage the external portfolio, and Marcussen said the fund has its own way of ensuring accountability.  

There is no form of investment committee – which it believes could hinder the formation of non-consensual or contrarian views – but instead puts emphasis on individual responsibility. The team has delegated authority to hire and fire managers and their incentive compensation is tied to the performance of the managers. 

“We decided early on that we would ban every form of investment committee in the organisation. It does not exist at all,” Marcussen, who has been at Norges since 2002, said. “We took a different approach, instead of having a lot of eyeballs in the sense of having a committee, let’s just take the fund and split it into a bunch of small entities and give individual responsibility to that person.” 

Marcussen said the fund finds a better alignment of interest with boutique managers, set up from scratch, and often founder-led.  

“We prefer solo PMs over team decisions but we do prefer if they have a team around them for sparring ideas,” Marcussen said. “We also have a preference for clear primary research, which means going to see the unions of the company, the suppliers, the competitors, we expect our managers to be out there. 

“It’s easy to sit there right and watch your Bloomberg screen, read sell side reports, see companies on the roadshow when they come through town. Like what the heck is that. It’s just like my teen sitting at home watching TikTok and TV.” 

NBIM has adopted AI across the organisation including in manager selection and monitoring. 

Each portfolio manager has real time data flows of the performance of very single manager throughout the day, with AI risk models for monitoring on top of that. 

“AI is massively important we have massively adopted it internally already. It is ingrained in every single operation and manager selection. We all use cursor and anthropic and are building it into systems.  

“Those tools are just becoming part of the game. I would view it as table stakes. If you don’t do this, you are out of business. I don’t’ think it necessarily gives you an edge, but not doing it is not an option.”