The fund’s management has resulted in excess return

Lately, Dagens Næringsliv has tried to make the impression that the fund since 1998 has not obtained excess return compared with the reference index when the fund’s complete risk exposure is taken into account. This is wrong.

• Since inception, the fund has seen an annualised excess return of 0.25 percent.
• There exists no figure that can account for all risk, as DN claims. In our report from March 2014 on the fund’s historical return and risk, we present several risk figures. All in all, we conclude that the fund has obtained excess return after risk adjustment.
• External managers have always been a part of our management model. Since the fund was established, external managers have contributed with a positive result of 15 billion NOK after costs.

DN refers to our report on the fund’s historical return and risk, where the risk-adjusted return allegedly equals zero when compared with the reference index. This is wrong. On the contrary, the report concludes that the fund after risk adjustment has obtained excess return compared with the reference index. This 24-page report was published on our website in March 2014. We sent it to the Ministry of Finance, and it was also thoroughly discussed in the parliamentary white paper from spring 2014. It is therefore unreasonable to claim that we tried to avoid publicity on the report.

In the report we present a broad picture – from various simple ratios between return and risk to a comprehensive investigation of exposure to different systematic risk factors. In addition, we made calculations for different sub-periods. Together with underlying data accessible on our website, the report is a good basis on which the public can evaluate the result of the fund management. One simple figure does not give a balanced view of the management result. We have therefore dedicated ourselves to giving the most comprehensive and broad picture possible of the historical return and risk of the fund.

The figure that DN has chosen to focus on is a highly technical comparison between risk-adjusted return for the fund and the reference index. As the fund has limited room for deviation from the reference index, it is no surprise that such figures are low.

Dagens Næringsliv asks whether we could have obtained the same return through pure index management. Our interpretation of the mandate given to us by the Ministry of Finance does not indicate that we should automate the investment of 6 000 billion NOK. The Ministry of Finance gives us a certain scope of action when it comes to risk, and we use this to build a portfolio that benefits from our advantage as a large, global and long-term investor.

To invest is to make choices. Looking back, we will see that some choices were good, and that some were less fortunate. What counts is that we as a fund manager improve the trade-off between return and risk in the long run. In our view, the analyses and results that we continuously publish, show that this is the case.

Dag Huse
Chief Risk Officer, Norges Bank Investment Management