External Management

Issued 1 July 2011
Last updated 12 June 2024

Policy

An External Fund Manager ("EFM") is defined as a legal entity that performs investment management services on behalf of Norges Bank Investment Management (NBIM) in the name of Norges Bank. NBIM’s use of EFMs is based on the rationale that specialist external expertise will contribute to investment return. When awarding investment mandates to EFMs, NBIM shall ensure that the process for selection, contracting, monitoring and termination considers the various risks associated with the individual EFM and that risks identified are within NBIM’s risk tolerance. NBIM shall have in place adequate and effective mechanisms to monitor and mitigate risks related to EFMs, both through contracts and control activities.

External fund management arrangement

• The EFM shall invest on a discretionary basis in the name of Norges Bank or provide investment management services on an advisory basis.
• Discretionary assets managed on behalf of Norges Bank shall be held in segregated accounts in Norges Bank's name at NBIM's appointed custodian.
• Shareholder voting shall not be delegated.
• Assets shall to the extent possible, be valued, accounted for and measured for performance in a manner consistent with internally managed assets.
• Holdings and transaction data, reflecting the most recent investment activity shall be provided and reconciled to NBIM custodians on a best endeavours basis daily, subject to specific market limitations.
• Necessary mechanisms, where reasonably achievable, shall be put in place to enable NBIM to execute termination in a timely manner and transfer assets to internal accounts within one business day.

Selection

• The EFM shall be regulated by local regulatory authorities and shall hold a valid investment license where this is required under local law.
• The EFM shall be subject to a selection process including a risk-based due diligence to mitigate fraud, including corruption, prior to funding, with selected due diligence elements being performed on-site.
• Confirmation of selection and documentation on the chosen manager shall be kept on file.

Mandate and investment management agreement

• An investment mandate shall be constructed to ensure compliance with related higher level investment mandates.
• Standard practice shall be that contracts are based on English Law and the Investment Management Agreement (IMA) shall be implemented in accordance with Policy on Safeguarding of Legal Interest.
• The IMA shall explicitly address Norges Bank's right to obtain access to review or audit the EFM.
• The fee structure shall be constructed in such a way that based on the expected fee the majority of any excess return accrues to NBIM. Contractual provisions shall limit the total annual fee paid per external mandate.
• The fee schedule shall be approved at least one reporting level above the person that negotiated the schedule. The calculation of return and fees shall be performed by an independent function.

Monitoring and review

• The holdings and transactions generated by the EFM shall be subject to daily investment guideline monitoring.
• The EFM shall provide an annual investment update.
• The EFM shall be subject to periodic integrity due diligence checks and provide an annual compliance and operational risk questionnaire.
• NBIM shall conduct periodic on-site reviews of the EFM with the frequency determined based on the risk characteristics of the individual EFM and incidents.