Norges Bank Splits CIO Responsibility Into Equities, RE, Allocation Specialties

(April 4, 2011) — Norges Bank Investment Management (NBIM), which handles the assets of the $559 billion Government Pension Fund-Global, has divided its chief investment officer responsibilities into three roles.  

Industry observers note that the division of responsibility reflects the value of expertise. “It’s common to have a head of equity, a head of property, and a head of asset allocation,” Rick Di Mascio of UK-based Inalytics Limited told aiCIO. “I think its quite difficult now for one person to do everything, so a fund of that size requires more expertise,” he said, noting the benefits of specialization. The big question that comes with dividing the CIO function into various specializations, according to Di Mascio, centers on how the fund chooses to allocate among asset classes.

“The only weakness in the decision of a fund choosing to split the CIO role may be in the allocation process,” Di Mascio said, explaining the process of allocating among equities, real estate, and other asset classes. “Specialist heads is a good idea – a fund just needs a strong character who can make allocation calls and sees where the opportunities are.”

Petter Johnsen has been named chief investment officer for equities, while Karsten Kallevig has been appointed chief investment officer for real estate. Meanwhile, Chief Executive Officer Yngve Slyngstad will also be chief investment officer for allocation.

The changes at the fund follow the departure of former CIO Bengt Enge, who left in early March.

NBIM’s leader group now consists of the following:

1) Yngve Slyngstad: chief executive officer/chief investment officer, allocation

2) Trond Grande: deputy chief executive officer/chief of staff

3) Petter Johnsen: chief investment officer, equities

4) Karsten Kallevig: chief investment officer, real estate

5) Jessica Irschick: chief treasurer

6) Jan Thomsen: chief risk officer

7) Age Bakker: chief operating officer

The creation of a real estate specialist could be a result of the fund’s   aims to continue expanding in real estate, infrastructure and other assets that have been viewed as hedges against inflation. In 2010, Norway’s sovereign-wealth fund started investing in real estate to improve the real return of the fund.

“Most investors these days have some concerns about inflation,” Dyrdal told aiCIO last month. “With 60% in equities and 40% in fixed-income, we still think we’ll be able to achieve our expected return even if fixed-income underperforms,” he said. While the fund is currently solely invested in public equity, fixed-income, and, more recently, real estate, Dyrdal indicated that the realistic fear of higher inflation could push the government to further diversify the fund into real estate, infrastructure, and private equity for protection of the real return.

Dyrdal added that the fund aims to continue its expansion into real estate at the expense of fixed-income, with a target of building a $25 billion real estate portfolio. “We just made our first investment in the UK, and the further real estate expansion will be gradual and conservative, with no time limit.” This year and next year, the fund will look toward investing in property in other major European markets — in the UK, France, and Germany — and will eventually look toward markets in other areas inside and outside of Europe. “Overall, allocation is decided by the Ministry of Finance, which seeks stable and long-term returns. For a fund of this size, it’s not easy to apply tactical applications.”