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

Peter Bernstein: Risk Inverse

Peter Bernstein, an economic consultant and respected investment thinker passed away on Friday June 5 in New York. Widely regarded as an intellectual giant in the investment circles for his ability to translate complex mathematical models into practical applications, he founded the Journal of Portfolio Management in 1974 and wrote a number of respected books

…as consultant assessment initiates changes to internal equity team and technology

CalPERS has reached its capacity to internally manage equities portfolios and would need to make changes to technology and staff resources if the internally-managed equities program is expanded, according to the outcome of the annual consultant review of CalPERS’ internal equity team by Wilshire Associates. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Asset class review inspires opportunistic allocation at CalPERS’

CalPERS is considering adopting an “opportunistic” program seeking to profit from substantially undervalued assets across various asset classes and strategies, and will be limited to 3 per cent of the fund’s total market value. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

The future of risk management: How independent should risk management be?

Barry Schachter, research associate with the EDHEC Risk and Asset Management Research Centre and director, quantitative resources, Moore Capital Management believes the current crisis is a catalyst for change in the conduct of risk management because it has challenged the efficacy of the existing risk management model, but simply imposing regulation is not the change

SWFs struck at financial crisis epicentre: $50b in losses from financials

For their biggest public market investments in the last two years, sovereign wealth funds (SWFs) zeroed-in on the most dogged companies in the worst-performing sector: Western financials. These decisions incurred paper losses of $US56.3 billion, accounting for most of their public market losses for the period. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Working hard for the money

Last year large institutional investors in the US, including the State of Massachusetts Pension Fund and CalPERS, dedicated money to senior bank loans. Amanda White examines the outlook for the sector and talks to group head of ING’s senior loan group, Jeff Bakalar, about whether institutional allocations to the sector have been tactical or strategic.

Previous