For the head of the Norwegian Sovereign Wealth Fund, the world is at the dawn of one of the “biggest changes in 30 years.”

Nicolai Tangen, head of the Norwegian Sovereign Wealth Fund, the largest in the world with about 1,200 billion euros in assets under management, today explained his vision for the near future. And, when viewed from the fjords, the horizon is quite dark. The CEO of Norges Bank Investment Management (former Norwegian Petroleum Fund) does expect difficult market conditions due to geopolitical developments and inflation:

“The probability of a terrible scenario has increased when the fund will fall by 40%”he declared before Norway’s unicameral legislature in Oslo.

Heard by the financial commission of the Storting (national assembly) for the government’s annual report on the management of the “oil fund”, Nikolai Tangen explained to the elected members of the “storting” (or “great assembly”) the reasons for his pessimism, according to the Norwegian business newspaper Dagens Naringsleeve (in English “Today’s Business”), the third in the country in terms of circulation.

“Once we started putting the Covid pandemic back into the past, imagining that everything would return to ‘normal’, it shrank even further. After Covid hit our foundation hard, Russia’s invasion of Ukraine will do the same.”Nikolai Tangen said.

The biggest change in a generation

In his preliminary written statement to the Finance Committee of the Norwegian Parliament before the hearing, Nikolai Tangen said:

“The geopolitical consequences of the war are difficult to predict, but we are undoubtedly heading towards the most important changes in thirty years. »

He elaborated:

“There is no doubt that rising tensions between the superpowers and the challenge of globalization will affect the markets. »

Inflation/stagflation, Ukraine, deglobalization… fatal triptych

For Mykola Tangen, the price increase, which had already started before the war in Ukraine, continues to accelerate, while interest rates are very low and stock prices remain high.

But there is worse than inflation: with high inflation and weak economic growth, the risk of “stagflation” looms, and over the past six months it has intensified.

“Stagflation is the worst thing imaginable,” he said.

For those who do not meet the ESG criteria, there is “nowhere to hide.”

The Norwegian fund, which invests all of its assets in foreign stocks and bonds, as well as in real estate markets and renewable energy projects, does not “nowhere to hide” and must manage the risks associated with entering global markets,” continued Nikolai Tangen.

“All this combined means that we are heading for a turbulent period,” he predicted.

For reference, in December 2021, Nicolai Tangen had already developed this idea, insisting on ESG imperatives that would become vital, certainly for the planet, but also for the markets: according to the managing director of the world’s largest shareholder says that life will become much harder for companies that fail environmental, social and governance (ESG) tests set by institutional investors.

“Companies that don’t adapt to the new ESG standards will see their funding dry up, insurance companies quit, employees quit, social media stigma intensifies, and customers disappear,” he said in an interview, according to Bloomberg.

Norwegian fund built on oil, the future leader of ESG?

As head of Norway’s sovereign wealth fund, Tangen controls about $1 trillion in equities, about 72% of the total portfolio. The rest comes from bonds, real estate and renewable energy infrastructure. The 55-year-old former head of a hedge fund has been saving collectively for Norwegians since the end of 2020.

And he promised the Norwegian government to turn the fund, which was built off the country’s fossil fuel wealth, into a world leader in responsible investing (ESG).

-90%: His portfolio of Russian stocks became completely untradeable

The Norwegian sovereign wealth fund is currently unable to sell its portfolio of Russian shares as the market for these assets is not functioning and many companies are on global sanctions lists, the fund’s CEO Nikolay Tangen said on Tuesday. .

The Foundation held Russian shares worth around NOK 27 billion. ($2.86 billion) at the end of 2021, or 0.2% of its total value, but has since stated that the value of these assets has fallen by at least 90%.

Norwegian fund lost 68 billion euros in the 1st quarter

However, the fund’s results are particularly strong with the recovery of the stock markets in 2020 and 2021, which saw the fund well above NOK 12,000 billion.

But in the first quarter of 2022 there is a big air pocket. Is this a harbinger of these difficult times caused by Tangen before the Storting? However, Norway’s Central Bank, which oversees the largest sovereign wealth fund on the planet, said on April 24 that it suffered a loss of about 68 billion euros in the first quarter due to financial problems related, in particular, to the war in Ukraine.

Thanks to oil revenues received from the Norwegian state, huge woolen socks fell in price by almost 5% (-4.9%), and their value fell to 11.657 billion crowns (1.216 billion euros).

“The first quarter was characterized by geopolitical unrest that affected the markets,” explained a second member of the Trond Grande Foundation, quoted in a press release.

In particular, investments in shares, which make up 70.9% of the portfolio, lost 5.2% over the quarter. And investments in bonds, which make up 26.3% of assets, lost 4.8%. On the other hand, investments in real estate (2.7% of the portfolio) grew by 4.1%.

All of these investments are made outside of Norway.the largest exporter of hydrocarbons in Western Europe, so as not to overheat the national economy.

This Tuesday, May 3, according to the live counter. (below screenshot of the day) on the website of the Norwegian central bank, the fund weighed NOK 11.721 billion (€1.178 billion), which is 2.17 million kroner (€218.321) for each of the Scandinavian country’s 5.4 million inhabitants.

Have the trust of the people – that is, the owners of the fund

Confronted by the Finance Committee, Nikolai Tangen stated that, in the end, what matters most in this situation is the fund’s soundness: and fortunately, the Norwegian pension fund has enough resources to cope with this uncertainty and risk, even if it is more difficult to make money in times of sudden fluctuations.

Finally, the last central point, trust. It is essential for the CEO of a sovereign wealth fund that the management of the fund communicate well with the owners, i.e. the Norwegian people, in order to maintain trust.

(together with Reuters, AFP, Bloomberg and Dagens Naringsleeve)