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.” 

 

 The current versions of AI are helpful at the “partial automation” of certain tasks, but for them to complete the last mile of training to reach the “full automation” tip of the spectrum, companies and investors should brace for a dramatic escalation of costs.  

If investors want to put their capital to work most effectively, there are some ways to spot an AI winner, according to Neil Thompson, who is an Innovation Scholar at MIT’s Computer Science and Artificial Intelligence Lab and the Initiative on the Digital Economy.  

“About 30 per cent of all the generative AI applications that people put together are going to fail at the proof-of-concept phase [by the end of 2025] because the economics just don’t work out,” he told the Top1000funds.com Fiduciary Investors Symposium at Harvard University. 

“Right now, we’re in an era where everyone is catching up on the things that are already economical to automate [with AI]. We just haven’t done it yet. 

“Then we’re going to have this second phase, where we get to… [AI applications] on the margin.” 

The exploration of AI applications will be a “gradual expansion”, and there are two areas when the competition between companies will be particularly intense. The first one, perhaps unsurprisingly, is competition over hardware such as computer chips.  

“We are scaling up the amount the use of AI way faster than we are scaling up the production of these systems, even though we are doing that as fast as we can,” Thompson said.  

Technology companies have huge reserves of chips. According to AI intelligence firm Epoch AI, Google holds around 1.2 million Nvidia GPUs and its own TPUs (tensor processing unit, a type of deep learning processor), Microsoft has around 600,000 Nvidia GPUs, and Meta almost 500,000.  

“These are chips that are $10,000 to 40,000 each, so these are huge investments that are going into these areas,” Thompson said. 

He highlighted that the scaling law in AI means there is a determined relationship between an increase in computing power and the performance of AI. 

“If we see one firm has an advantage on hardware over another, we could actually try and estimate how much of a benefit that’s actually going to give it.” 

The second area of competition will be around data, specifically how much is available to a company for training purposes. Thompson recalled a conversation with Nvidia about its autonomous driving capabilities, where the company expressed concerns that competitors like Tesla may have a data lead due to the number of cars they already have on the road.  

“So Nvidia made this interesting proposal to them [other car manufacturers]. They said, what we’ll do is standardise the sensors that you put on there. You send us your data, we’ll process it, and we’ll give you back a model that allows you to run it – that meant lots and lots of different car manufacturers were pooling their data at the same time,” Thompson said. 

“Even though they started behind Tesla, collectively, they had more cars on the road.” 

Thompson tipped that this form of data pooling will become more of a common occurrence to close the data gap with, for example, companies like Google which can collect billions of pieces of feedback via their search engine every day. The consolidation of data could lead to a first-mover advantage.  

“We should expect much faster progress in those areas where it’s all the data can be automated, much slower progress in the hands where the data is expensive or rare to get,” he added.  

With the development of AI and the pursuit of more computing power, a next step question is the broader adoption of quantum computers, but Thompson is of the view that it will not supersede classical computers, at least for the time being.

“We’re going to have cases where it [quantum computers] is not useful at all before some date… then there’s going to be some particular problem size and some particular year where it’s going to come in,” he said. 

“For example, if you say I want to crack modern cryptography, there is a moment where you suddenly start to be able to crack any cryptography faster than the classical computer [with quantum computers]. 

“We still need to pay lots of attention to classical computers and AI, but it does mean that in a small number of areas, we should expect big differences… so we can start to think about what that’s going to mean for investing in, say, molecular simulations.” 

The second Trump administration has given investors plenty to worry about – tax changes, tariffs and diplomatic chaos among a slew of distractions in the US.  

But in reality, there is only one threat that could bring devastating damage to portfolios that everyone should be concerned about.  

Global geopolitics expert Stephen Kotkin, who is a senior fellow at the Hoover Institution at Stanford University, told the Fiduciary Investors Symposium in Harvard the priority around the globe should be avoiding a hot war between the world’s two superpowers. 

“If there’s a war between China and the US, you’re finished. Your portfolios are finished. Everything is finished,” he said. 

“In a US-China war, every pipeline in the world is going to go up in smoke and burn. All those oil tankers at sea, they’re going to be sunk in the Strait of Hormuz, the Strait of Malacca, in order to block traffic so the Chinese can’t import energy. 

“The whole world game is to prevent war between China and the US. Everything else is just noise and manageable. I’m not worried about it – it’s competition, and it’s just life.” 

The US president Donald Trump, despite his unpredictability, has an important role in restoring global balances, said Kotkin.  

Since the start of his term, Trump has made threats to withdraw US security promises to NATO allies, which resulted in European nations significantly upping their defence spending.  

Europe accounts for 17 per cent of the global GDP, 7 per cent of the global population, but almost half of global social spending, Kotkin said. The countries could maintain its level of welfare partly because its security spending was underwritten by the US.  

“The costs of the American security umbrella – those almost 80 treaties – that’s gone sky high. We haven’t even gotten to China, where our adversary has gotten a lot better,” he said. 

“America can’t afford its commitments, and it’s got to rebalance somehow. 

“These global imbalances are real. Trump is not fixing them, and you think he’s exacerbating them. All he’s doing is revealing them.” 

The US dollar’s reserve currency status is a “seduction” for the world’s largest economy, Kotkin said. It has caused the US to live beyond its means and accumulate substantial debt.  

“We borrow in our own currency, as if we’re not borrowing any money – as if it’s free money, as if it’s play money,” he said. 

“Sure, it enables us to do these sanctions and financial shenanigans against countries we don’t like – which don’t work, but it enables us to do that and exercise our power.  

“But what it really does is sucker us into thinking that a $29 trillion debt on a $30 trillion economy doesn’t really matter when, of course, it does matter.” 

More currency options is not a bad thing, but the problem is there lacks a real alternative that could be as convertible and liquid as the US dollar. But evaluating the fundamentals of other currencies and assets is a call that asset owners, as fiduciaries, have to make on behalf of their members, Kotkin said.  

But he is of the view that there is “zero chance” an alternative currency will replace the US dollar in the short term.  

“You got deep fundamental institutional power and values here at play [in the US], and you have to beat that,” he said. 

“The only thing that can destroy the dollar is us.” 

Leading asset owners have urged peers to remain cool-headed in volatile markets, warning against making big, risky bets when no one can really predict how policy uncertainties like tariffs will eventually play out. 

Michael Trotsky, chief investment officer of the $100 billion US public pension fund MassPRIM, said global markets have a long history of “the kind of chaos we’re going through”. 

The history of tariffs in the US can be traced as far back as the Early National Period when the first Treasury Secretary, Alexander Hamilton, used them to pay the federal government’s operating expenses and to redeem debts.   

“We at PRIM don’t…believe at all in tactical asset allocation, but we do believe in sticking to a strategic asset allocation,” Trotsky told the Top1000funds.com Fiduciary Investors Symposium at Harvard University.  

Trotsky said the fund is doing two things during times of extreme volatility. The first is making sure its managers are not making big tactical bets, including any excessive factor and country exposure that drags it away from benchmarks.   

The second is strictly adhering to a rebalancing strategy.  

“In times of volatility there are going to be some opportunities and, over time, we think by rebalancing aggressively monthly, which is what we’ve always done, that’ll be a tactical approach,” Trotsky said. 

Jay Willoughby, chief investment officer of outsourced CIO company TIFF Investment Management, echoed the need to stay close to SAA and not act rashly when there’s an overflow of information about the markets. 

“If you don’t know what’s going on, don’t try to be a hero and make bets on things that are very low-confidence bets,” he said.   

“I don’t think anybody knows what’s going to happen. I don’t think Donald Trump himself knows what’s going to happen. It’s a reflexivity situation that we’re in that could end very badly or very well for the markets.  

“I would stay close to my SAA as well, even by country.”  

Head of US credit research of Dutch investor APG, Thomas Lee, said the fund’s playbook during uncertainty is to generally become more conservative, but that does not mean pilling into cash.   

“When there’s a lot more unpredictability in the market, you make your portfolios more predictable,” Lee said. For example, he said the fund would gravitate towards investment-grade bonds or double-B ratings for high-yield bonds, which is exactly what it did after Liberation Day. 

Like many asset owners, APG is grappling with the broader shift away from US assets and its impact, but Lee is not too worried about the trend.  

“I do think that there isn’t going to be a major shift at the end of the day, in terms of dollar weakening or assets moving outside the US to other parts. I think there will be shifts, but I just don’t think it’s going to be seismic,” he said. 

“That keeps me more at peace in terms of dealing with the volatility from day to day, and the way that we see is that it does create opportunities, hopefully, to make investments at a lower entry point.”  

CDPQ’s New York-based managing director and head of Americas, Yana Watson Kakar, said she is bullish on the US. The fund has around $150 billion invested in the nation, and she pointed out that nine of the world’s 30 largest economies are states in the US – sizes significant enough to rival most countries. 

“Economic pain points in the US normally have been offset by what we’ve seen in the bond market and what the dollar does, but not now – so there are some warning signs,” Watson Kakar said.  

“But the fundamentals are strong. Any investment decision is both an absolute and a relative one.  

“Protectionism has been fairly structurally consistent in the United States for some time now. As a long-term investor, we spend a considerable amount of time scenario planning and pay close attention to those actions most likely to impact our investments in the country, or the Québec companies that we support,” she said. 

Bridgewater Associates co-chief investment officer Karen Karniol-Tambour warned that many investors have built up significant vulnerabilities in their portfolios over the past 15 years, which is a period defined by steady growth and US market exceptionalism.

However, the Liberation Day tariffs and resulting market action exemplified how the world is shifting to a new economic paradigm that is much less favourable for traditional portfolios, and investors who fail to address these vulnerabilities face significant risks.

The shift is caused by what Bridgewater calls a pivot to “modern mercantilism” where countries treat the accumulation of national wealth, pursuit of geopolitical strength and economic self-sufficiency as priorities.

“This shift is a very direct threat to what a lot of people hold,” Karniol-Tambour told the Top1000funds.com Fiduciary Investors Symposium at Harvard University.

Specifically, a lot of portfolios aren’t well-equipped to handle weak growth, tightening liquidity from the Federal Reserve, an equity bear market or US stocks underperforming the rest of the world.

While these vulnerabilities existed 15 years ago, investors are a lot more sensitive to them now, with huge US concentration in their portfolios and coming out of a strong equities bull market run. “Naturally, people invest with market cap and so whatever the winners are, you end up holding more and more of them,” Karniol-Tambour said.

“But the environment we’re in today very directly goes at these vulnerabilities and puts them in the limelight for us to stare at and think, how resilient am I to these vulnerabilities going forward?”

US companies are more exposed to risks created by the Trump administration’s volatile trade policies than the direct impact of tariffs would suggest, and the fact that a lot of US corporates are global companies makes them “uniquely vulnerable” in many ways, she said.

“We’re seeing countries get very sophisticated about how to target US companies specifically; how to specifically deal with their market access; how to specifically reduce buying US goods; and how to go after antitrust against these companies.”

This is combined with the fact that negative impacts tend to be more outsized on US equity market earnings compared to positive impacts. According to Bridgewater’s modelling, US-imposed tariffs and retaliation from other countries are likely to be a downward pressure on US earnings that won’t be offset by reshoring and a lower corporate tax.

The beginning of the second Trump administration has also caused the unravelling of the US’ relationships with allies and prompted them to quickly reassess their reliance and investment exposure to the world’s largest economy.

“I think it is somewhat underappreciated by policymakers, at least, how much the flip side of the trade deficit is – of course, the fact that so much capital is coming into the United States,” Karniol-Tambour said.

With the dependence of US dollar and assets on foreign inflows, even just a slowdown in foreign purchases could turn into huge risks to US market performance and currency.

“We’re starting at a point where 80 cents, 90 cents on the dollar that cross any border around the world are coming into the United States, just because of the high market cap and liquidity,” she said.

“All it takes is some reassessment [of US allocation]… to get US underperformance, to get a dollar issue.

“I think we’re in the early stages of that, given how long it takes for governments to shift, for places to reassess and for that money to actually move.”

For asset owners who are looking to address their portfolio vulnerabilities, now is the time to consider the toolkit available. For one, Karniol-Tambour said investors need to “treat the geographical diversification question as urgent”, looking at places like Asia.

“You could take out China with all of its own geopolitical and governance issues, and still say that there’s a lot of places around the world that look a lot less like the United States, and have a lot more of their own drum beating to determine what will happen there, where investors are radically under allocated,” she said.

Other measures worth considering include revisiting the currency hedging position, focusing on maintaining liquidity, and building a portfolio resilient to different economic scenarios.

“The biggest takeaway I have from just the broad shift we’re in in the world, is that when things change, almost inevitably everyone is set up to the world that used to be,” she said.

“And people set up more nimbly, able to take advantage of the world as it is and the changes in it, end up doing better when the world looks different than it used to.”

Opportunities that correspond to the social factor in ESG are much harder to come by than environmental or sustainability-related investments. However, its benefits are substantial and, in some cases, may have a positive impact on asset owners’ pension liabilities.  

That is the view of Lars Wallberg, CEO of Denmark’s Velliv Association (Velliv Foreningen). The association became the sole owner of the €40 billion ($45.2 billion) commercial pension fund, Velliv, after acquiring Scandinavian bank Nordea’s stake in 2019, and distributed the ownership to the fund’s 420,000 members.  

Velliv Association works with a board of representatives – effectively 50 individuals elected by and from among the members – and a board of seven directors. Eighty per cent of the fund’s profit is distributed as an annual cash bonus to members (with €300 million handed down since 2018) and 20 per cent is donated to philanthropic activities (€75 million since 2018).  

Despite living in one of the developed countries in the world, OECD figures in 2022 showed that one in every two Danes will encounter a psychological issue at some point in their life.  

“We in Denmark, and the rest of the Scandinavian countries, will very rarely consider ourselves or talk about ourselves as being happy. We are much too introverted, much too quiet, normally at least, to say that,” Wallberg told the Fiduciary Investors Symposium at Harvard University. 

In reality, however, workplace-related stress and anxiety are major contributors to people leaving the Danish labour market early, and around 50 per cent of Velliv’s benefits payments go to members with mental health issues, he said. 

“A few years ago, it was cardiovascular diseases and so on that dominated [benefits payment]. Now it’s stress, anxiety and depression,” Wallberg said.  

“There are lots of sources [of the problem]. As humans, we always strive to become richer, we expect more of our lives, and we challenge ourselves constantly to be good parents, good workers, have successful careers, travel all over the world. 

“We simply put too much pressure on ourselves and on our peers.” 

Last year, Velliv Association made one of its first social impact fund investments via Dannish asset manager Den Sociale Kapitalfond. The private equity, small-to-medium business-focused fund requires portfolio companies to have plans around how they are engaging with marginalised communities in the labour market.  

This could be people with mental health issues or neurodivergent individuals among other vulnerable communities, Wallberg said. A company example is organic ice cream producer, Hansens, which itself is a four-generation family business and employs local workers in their production.  

“It’s a challenge for a private equity fund, both to earn money and to encourage the companies to include people who are outside or at the margin of the workplace,” Wallberg acknowledged.  

“But they have a proven track record, so we believe in it.” 

Wallberg also highlighted the importance of leadership at asset owner organisations to take care of their workforce, especially young women aged between 25 and 35 which, at least in Denmark, has been identified as the group with highest stress level.  

“My message is, mental health requires both dedications – being among your people, working with them – and it requires leadership, including taking care of yourself as a leader and your management colleagues,” he said.