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”.

Sponsored Content

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.

Leave a Comment

Sort content by

Big Bond Bust

In his editorial in the latest edition of the FAJ, Richard Ennis calls into question the role of advanced, aggressive fixed-income strategies, questioning the suitability of such techniques in the part of the investor’s portfolio that bears the brunt of providing downside protection.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

CalPERS on path to improving risk intelligence

The CalPERS governance risk management initiative (GRMI) project team, led by Allen Goldstein of The Results Group, has reported to the board on phase II of the project, concluding with 17 preliminary observations of areas of improvement. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

DNB approves Shell recovery plan

The 10.6 billion ($15 billion) Shell Pension Fund’s recovery plan has been approved by De Nederlandsche Bank and includes a provision to increase employer contributions to 32 per cent, up from 5 per cent last year, on the back of a whopping -43.3 per cent return for 2008. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

TRS invests in PE, eyes opportunistic real estate

The $30 billion Teachers’ Retirement System of the State of Illinois (TRS) will commit up to $1.2 billion to private equity, and will focus on opportunistic investments in real estate including emerging manager initiatives, as it aims to reach its new long-term allocations in those sectors by year end. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Canadian funds delve into performance drivers

Four of Canada’s pension funds have established a professorship in pension management at the Rotman School of Management at the University of Toronto with initial research to focus on a better understanding of the drivers of pension fund performance using the global databases of CEM Benchmarking. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Counterparty risk prompts changes in sec lending

More than two thirds of the institutions that made changes to their securities lending programmes on the back of the global financial crisis cited less confidence in counterparty stability as the driver, research has revealed, however less than 20 per cent suspended participation following the market volatility. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Previous