RI Comment: Why the Norges Bank Investment Management expenses scandal matters

The tone at the top is important in any organisation

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The only gifts officials at Norges Bank Investment Management can receive are, according to internal rules, “promotional items of minimal value bearing a company logo”, i.e. the handouts you get at conferences, and “materials received as part of a seminar or educational event”.

It’s doubtful you can count a flight on a private jet after a seminar in the latter category, which is why Yngve Slyngstad and his successor as head of the huge – and hugely influential – Norges Bank Investment Management are in such trouble.

The fact that the donor of the gift is NBIM’s incoming CEO, billionaire hedge fund executive Nicolai Tangen, adds to the scandal.

The background to the scandal is that Tangen invited Slyngstad onto a private flight from New York to Oslo in November last year, following a seminar at the Wharton School of Business that Tangen had organised. This has now raised questions about whether the nomination of Tangen to head NBIM was conducted properly. Slyngstad has admitted he should have taken a scheduled flight paid for by NBIM.

As one apparently former NBIM employee noted in the Financial Times comments section, Norges wants to be seen as “whiter than white” because of the heavy scrutiny it faces.

‘RG’ states: “So for something like this to occur is so obviously wrong as per internal culture that it was either massive oversight by compliance or, worse, a blatant assumption that this would not reach the outside world.”

It all comes as the fund is, as RG notes, “busy preaching ethics to all its investments globally”.

NBIM is a founding signatory of the Principles of Responsible Investment. More than that, it was one of the key group of “drafting signatories” that shaped the six principles.

Although it tends to ‘plough its own furrow’ and leave collaboration to others, there’s no doubting it is one of the pillars of institutional ESG. Its vast size – it’s the world’s single largest owner of equities – means that it helps to set the weather for responsible investment. Its exclusion decisions, for example, are replicated at other investors.

It means that Slyngstad has been at or near the apex of the responsible investment pyramid for years, so if the head of such an influential asset owner can’t show the highest standards of professional probity where does that leave us?

The scandal has overshadowed a report NBIM released late last week looking at its 20-year history of running external managers.

Mats Langensjo, the Swedish pensions expert, called it a “must read for anyone responsible for fund manager selection”.

The document reveals that NBIM has terminated 227 equity mandates out of the 308 mandates awarded since inception in 1998, or to put it another way “an average of 11 mandates have been terminated every year”.

Termination is swift and could happen because, for example, a key portfolio manager is promoted to CIO.

The quickest termination came after two weeks “due to the portfolio manager leaving the firm”. And bear in mind that most of the terminated managers “generated an excess return before termination”.

Only three managers have been terminated over regulatory issues, but this was as a risk mitigation action — ahead of regulatory investigation.

So, this is the context in which the Slyngstad scandal has to be viewed. NBIM’s holding investee companies to task is well known, but its ruthless treatment of external asset managers is now coming to light. He can presumably expect similar treatment.

Although he resigned as CEO, Slygnstad was going to take the reins of NBIM’s unlisted renewable energy investments.

It follows the (you guessed it) termination in 2018 of 11 environmental mandates that had been in place since 2009. There has to be a question mark over whether Slyngstad will be allowed to take on the new environmental role.

Slyngstad, who has twice been listed amongst the Forbes list of the world’s most powerful people, has cultivated (or been accorded) a ‘zen master’ image. It’s been reported he once spent six months alone in an Arctic cabin studying German philosophy before embarking on his finance career.

He told the FT a few years ago that the fund’s global investing style is a “gravitational field for everything that happens in society” but he also noted the “balancing act” between pure global financial capitalism and a “transparent, egalitarian, democratic society.” Those words may come back to haunt him now.