The $2tn man

Katie Martin (0:00)

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It must be pretty daunting to wake up every morning knowing that you're in charge of looking after the best part of $2 trillion worth of assets on behalf of your nation. That is a serious chunk of change. In Norway, that precise task falls to Nicolai Tangen, who runs Norges Bank Investment Management, known in market circles as the Norwegian Oil Fund. Now the size of this thing is something to behold. It owns, on average, around 1.5% of every listed company. And it's the largest single sovereign wealth fund on earth. So today on the show, we're asking, how do you make a massive supertanker like that run smoothly? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at the FT in London. Now regular listeners will know that this here podcast usually involves a couple of FT journalists shooting the breeze. But today, I'm very happy to say that I'm joined in the studio here at FT Towers by Nicolai Tangen himself. He's something of a VIP guest. Nicolai, thanks so much for joining us today.

Nicolai Tangen (1:33)

Thanks for inviting me.

Katie Martin (1:34)

So Nicolai, for any of our listeners that are not familiar, what is this thing? What is this fund?

Nicolai Tangen (1:40)

Well, they found oil on the Norwegian shelf in 1969, and the politicians decided they wanted to put it into a fund to avoid some of the things they had seen in other countries, such as in Holland, where they had something called the Dutch disease, spending too much money domestically. So in 96, they put money into the market for the first time, 2 billion Norwegian kroner, that has now grown to 19,000 billion. So it's now the largest sovereign wealth fund.

Katie Martin (2:07)

I mean, it's no wonder that countries around the world are kind of looking at this model and thinking, huh, is there something similar we can do over here? There's obviously quite a few of these funds out there, but you just need a lot of discipline to do something like this, right?

Nicolai Tangen (2:23)

You need a lot of discipline. So there's a spending rule in place, which means that you can only spend up to 3% of the fund every year. And I think another key is that it has broad political anchoring, i.e., it's broad consensus how this money should be spent amongst all the political parties.

Katie Martin (2:39)

So tell us, how does it feel to be doing a job like that? Right, because in your previous existence as a hedge fund manager, you eat what you kill, and you answer pretty much to yourself. This is a whole different situation.

Nicolai Tangen (2:52)

It's a very different situation, of course. And so you're right, we run the assets on behalf of the country. Now, I don't do it myself. We are 700 people. And importantly, it's also done according to a strict mandate from the Ministry of Finance. And I think that's very, very important. So there is a department within the ministry, they do a fantastic job in defining a mandate, and we invest according to that.

Katie Martin (3:15)

Yeah. But how does that kind of responsibility affect like the ethos of the fund and how it operates?

Nicolai Tangen (3:23)

Well, we all feel very privileged to have that responsibility. I think the fact that the job is so important in the country makes it easier to attract very, very good people. And the fund now accounts for nearly 25% of the state budget. So it is incredibly important despite only using 3% of the fund every year.

Katie Martin (3:45)

Yeah.

Nicolai Tangen (3:45)

So it's a really important fund.

Katie Martin (3:47)

Now, so when we first met in early 2023, you said you thought we were looking at a long period of time with very, very low returns. And that made a lot of sense at the start of 2023, because 2022 was such a horror show in pretty much every asset class. But the world hasn't worked out like that at all. Risk assets have done really well since then. Why do you think that happened? And why is it taken so many people by surprise?

Nicolai Tangen (4:15)

Well, you know, the stock market's function in life is to try to steal your money every day. And of course, that's exactly what it's done lately in some ways, because many people have been more negative than what has actually turned out to be the case. I still think we are heading for a period of low returns. The time of very low interest rates has gone. The world is a much more dangerous place. The leadership in the market is very narrow. It's focused in on companies with some kind of AI connection. And the 10 biggest companies now in the US account for something like 20% of the index. So it's very, very concentrated, and it's tied into some geopolitical risks, which also we haven't seen before. So there are a lot of things moving here.