CEO of Norway's Giant Fund Warns Tech Rally Won't Last
Investors willing to go against the market in the coming months should consider selling U.S. technology stocks and private credit, while boosting holdings in China, according to the head of Norway’s US$1.8 trillion sovereign wealth fund.
“The best thing to do is always to do the opposite of everybody else,” Nicolai Tangen said in an interview with David Rubenstein at Bloomberg House during the World Economic Forum in Davos on Wednesday. “What will that be today? Well, if you were to do the opposite of everybody else, it would be to sell the U.S. tech stocks, buy China, sell private credit, just buy stuff that is out of fashion.”
He acknowledged that’s “very, very tough to do because if you are contrarian and you are different from your benchmarks and so on, there will be periods where you underperform and everybody is going to question your sanity,” the executive said.
The executive joined Norges Bank Investment Management (NBIM) — the official manager of the fund — in September 2020 from AKO Capital LLP, the hedge fund he founded in 2005. During his tenure, Tangen has urged his traders to think long-term and warned that inflation is likely to continue to weigh on returns in the coming years.
While Tangen has encouraged his staff to be contrarian, he stopped short of saying whether the fund was reducing holdings in U.S. technology stocks and adding China. NBIM is due to report key financial figures for 2024 on Jan. 29.
A second administration of U.S. President Donald Trump that reduces regulation and drives growth may be “really good for our companies in America,” the executive said, while tariffs will negatively affect Europe.
“There is a big question whether the policies will be inflationary, which would be bad news in the longer term,” Tangen said, citing tighter labour markets and tariffs as factors that may drive up costs. “There could be a moment where, given the high level of government debt, investors suddenly decide, ‘We want a much higher coupon to lend to governments.’ So you could see a step up in interest rates, which could be negative for financial markets.”
Investors should be on the lookout for rising yields on long-term debt in the United States, as the best indicator for inflationary pressure, the executive said on a panel discussing the trajectory for interest rates.
“It’s the stuff you cannot model which really derails markets,” he said, such as the financial crisis, the COVID-19 pandemic and the 2011 earthquake and tsunami in Japan. “They come about every so often and there will be another one coming up.”
The oil fund, as it is known at home, is the world’s biggest single owner of public equities, with shares in almost 9,000 companies globally. It was established in the 1990s to invest Norway’s petroleum wealth and is largely an index-tracker, working according to a strict mandate from the country’s finance ministry.
With Tangen at the helm, NBIM has taken a stronger stance on environmental, social and governance issues. Efforts have included disclosing voting intentions ahead of annual general meetings and sitting on advisory boards for international standard setting bodies. That focus isn’t going away despite a backlash in the U.S., Tangen said on Wednesday.
Tangen, 58, was born in the southern Norwegian city of Kristiansand and began his career in the Norwegian military. He went on to study finance at Wharton School, followed by a career in London that included a stint at Egerton Capital (UK) LLP.
During Wednesday’s interview, Tangen said he prioritizes learning over money and that stubbornness and agility are key characteristics for a good investor.
“When things change, you have to change your mind. And that’s the rarest combination in investment management,” the executive said.
Gwladys Fouche of Reuters also reports Norway wealth fund posts record $222 billion profit but warns tech boom won't last:
OSLO, Jan 29 (Reuters) - Norway's $1.8 trillion sovereign wealth fund, the world's largest, reported on Wednesday a record annual profit of 2.51 trillion crowns ($222 billion), driven by last year's tech rally, but warned that strong returns won't last forever.It was the second straight year of record profits, beating the 2.2 trillion Norwegian crowns earned in 2023."It was a very strong year," Nicolai Tangen, CEO of Norges Bank Investment Management, the fund's operator, told a press conference. "We had massive gains from technology."Nearly 50% of the return came from tech stocks, fund data showed, first among them Nvidia.Tangen warned those returns may not continue. "I just want to warn again that this will not last forever," he said.Semiconductor stocks in the U.S. and Europe climbed on Wednesday for a second day after China's low-cost DeepSeek AI tool triggered a punishing selloff in artificial intelligence-linked shares earlier this week.Stress tests the fund released Wednesday quantified the risk posed by an AI stock correction, a debt crisis or geopolitical risk, with scenarios showing the fund could lose 18%, 40% or 35% of its value for each risk respectively - and more if they were combined.Despite this, the fund is not taking fresh steps to address its dependency on tech stocks. It had a "small" underweight stance in tech stocks before Monday's sell-off in AI-related shares and had not made major changes this week, Tangen said.NBIM, which invests the Norwegian state's revenues from oil and gas production, is one of the world's largest investors, owning on average 1.5% of all listed stocks worldwide. It also invests in bonds, real estate and renewable energy assets.The fund's return on investment in 2024 was 13%, 0.45 percentage point lower than the return on its benchmark index.Inflows from the Norwegian state into the fund in 2024 totalled 402 billion crowns, short of a record set in 2022 of nearly 1.1 trillion crowns.The return on equity investments was 18% last year, fixed income investments gained 1%, unlisted real estate returned a negative 1% and unlisted renewable energy infrastructure had a return of minus 10%, NBIM said.At the end of the year, 71.4% of the fund's assets were allocated to equities, up from 70.9% in 2023, bonds declined to 26.6% from 27.1%, unlisted real estate fell to 1.8% from 1.9% and renewable infrastructure represented 0.1% of investments, unchanged from the previous year.
Chloe Taylor and Jenni Reid of CNBC also report the world’s largest sovereign wealth fund reports record $222 billion annual profit on tech rally:
Norway’s sovereign wealth fund — the largest of its kind in the world — posted full-year profit of 2.5 trillion kroner ($222.4 billion) on Wednesday, fueled by a tech rally.
The fund’s 2024 profit surpassed the record set a year earlier, when it achieved full-year profit of 2.22 trillion kroner.
The Government Pension Global Fund was valued at 19.7 trillion kroner at the end of 2024, Norges Bank Investment Management (NBIM) said in an earnings report. The fund’s return on investment came in at 13% for the year, 45 basis points lower than the return on its benchmark index.
“The fund achieved very good returns in 2024, as a result of a very strong stock market. The American technology stocks in particular performed very well”, Norges Bank Investment Management CEO Nicolai Tangen said in a statement.
Speaking at a press conference on Wednesday, NBIM Deputy CEO Trond Grande described a “very, very strong year for equities” as the biggest driver of the fund’s return in 2024.
More specifically, he noted returns had been driven by certain sectors, particularly as a result of a boom in tech stocks.
“Tech [has been] really strong, driven by AI, and also financials due to interest rates being higher for longer,” he said.
NBIM manages the fund on behalf of the Norwegian population. Set up in the 1990s to invest excess revenues from Norway’s oil and gas industry, the fund is currently an investor in more than 8,000 companies across 63 countries.
The fund is a shareholder in global companies including tech giants Apple, Microsoft, Nvidia and Amazon, with 70% of its benchmark index comprised of equities.
The sovereign wealth fund also invests in fixed income, including government and corporate bonds, as well as in real estate and renewable energy infrastructure.
DeepSeek impact
U.S. tech stocks have been volatile this week, after Chinese AI lab DeepSeek released a free, open-source large language model that it said was quicker and cheaper to produce than those of its major rivals.
The developments sparked a tech sell-off on Wall Street, with AI darling stock Nvidia — in which the Norwegian sovereign wealth fund holds a 1.3% stake — dropping almost 17% on Monday.
Tangen touched on the emergence of DeepSeek during the Wednesday press conference.
“The fact that there are now cheaper language models available is positive, it’s positive for the democratization of artificial intelligence,” he said. “So you should get more penetration of that technology around the world when the cost is lower, so that’s a general positive.”
Tangen admitted that he did not know whether the recent tech sell-off was a blip or would become a long-term trend.
“We have had a small underweight in the large technology companies, it’s not very large, but we have not made any major changes following Monday,” he said.
“I think [the DeepSeek development] came as a surprise to the whole world or you would not have seen those market reactions,” he said, noting that people he had spoken to had believed China was around two years behind the U.S. on AI developments.
NBIM released this press release last week on the Fund's results:
The return on the fund’s equity investments was 18 percent, the return on the fixed income investments was 1 percent, whereas investments in unlisted real estate returned -1 percent. The return on unlisted renewable energy infrastructure was -10 percent.
The fund’s return was 45 basis points lower than the return on the benchmark index.
“The fund achieved very good returns in 2024, as a result of a very strong stock market. The American technology stocks in particular performed very well”, says CEO Nicolai Tangen of Norges Bank Investment Management.
The krone depreciated against several of the main currencies during the year. The currency movements contributed to an increase in the fund’s value of 1,072 billion kroner. Inflow into the fund amounted to 402 billion kroner.
The fund had a value of 19,742 billion kroner as of 31 December 2024. 71.4 percent of the fund was invested in equities, 26.6 percent in fixed income, 1.8 percent in unlisted real estate, and 0.1 percent in unlisted renewable energy infrastructure.
When Nicolai Tangen talks, you should pay attention because he's a smart investor who is in charge of Norway's behemoth wealth fund.
Tech stocks helped the Fund post solid returns last year and the prior year but will it continue to produce stellar results on the back of tech giants?
That all depends on interest rates and if they stay elevated for longer, it could spell trouble for tech stocks and other risky assets.
Year-to-date, Healthcare, Communication Services and cyclicals like Financials,Materials and Energy are leading the market higher and Technology is trailing the S&P 500 by a wide margin:
Admittedly, we are only at the beginning of February but my point is it seems like a rotation is going on in the market and if this persists, Tangen will be proven right on mega cap tech shares.
What else on the Norwegian Fund's performance? I would recommend you listen to the presentation of their performance here and go over the slides here.
I embedded a few slides below:
It's also worth noting that unlisted real estate returned -1% and their infrastructure -10% but that is listed and unlisted (mostly listed equities).
Below, AI generated podcast powered by Google's NotebookLM summarizes a Goldman Sachs Talks interview with Nicolai Tangen, CEO of Norges Bank Investment Management, the world's largest sovereign wealth fund. Tangen discusses his five years leading the fund, emphasizing long-term, diversified investing with a focus on transparency and ethical considerations. He highlights the fund's impressive performance, its commitment to environmental, social, and governance (ESG) factors, particularly climate change mitigation, and its unique approach to investor dialogue.
The conversation also explores broader topics such as leadership styles, the evolving role of private markets, and the impact of technological advancements like AI on investment strategies. Finally, Tangen shares insights from his leadership podcast, "Good Company," and his personal philosophy of continuous learning.
Next, Norges Bank Investment Management is responsible for Norway’s Government Pension Fund—the largest sovereign wealth fund in the world—which owns about 1.4 percent of the world’s listed companies. CEO Nicolai Tangen sat down with Goldman Sachs chairman and CEO David Solomon in late November to discuss Europe’s investment landscape, why Tangen prefers long-term investing, and what he’s learned from speaking with the world’s most influential leaders on his podcast In Good Company.
Third, Nicolai Tangen, CEO, Norges Bank Investment Management; Founder, AKO Capital said he had applied to run the sovereign fund for a second five-year term, but he said the role would be his last in finance during a special taping of The David Rubenstein Show: Peer-to-Peer Conversations at Bloomberg House in Davos.
Lastly, the annual results are prestented by CEO Nicolai Tangen and Deputy CEO Trond Grande. The press conference was live streamed on January 29 2025.
I highly recommend you listen to all these interviews and the presentation of annual results.
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