Norges Bank Board Defends Chief Executive Pick, Again

At a parliamentary hearing, the board governor helped the hedge fund manager Nicolai Tangen, under fire since his appointment. 


The Norway central bank continued to defend its pick for chief executive at a parliamentary hearing on Monday.

Incoming Norges Bank chief executive Nicolai Tangen has drawn fire since March when he was appointed head of the $1.14 trillion fund. Among other criticisms, detractors say the role would be a conflict of interest for the hedge fund manager, who is not fully divested from London-based AKO Capital, which he founded and led. Tangen will take up the CEO position in September. 

That has drawn the ire of the supervisory board at Norges Bank, which is appointed by the parliament to audit the central bank, according to local reports. In a Reuters report, Julie Brodtkorb, head of the Norges Bank supervisory board, said, ”there’s been a breach of guidelines, regulations, and laws.”

But the Norges Bank board defended Tangen again to the standing committee. In an opening statement on Monday, Board Governor Øystein Olsen said the hedge fund manager “emerged as the decidedly strongest candidate” during the application process. Tangen beat out seven other candidates, including Norges Bank’s deputy chief, Trond Grande.

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Olsen also repeated that sufficient safeguards have been installed to put distance between the central bank, AKO Capital, and Tangen. Tangen is required to step down from all directorships from his hedge fund, which will change the composition of its board, so the majority of members no longer have close ties with Tangen. 

Additionally, a trustee will exercise Tangen’s voting rights at the hedge fund, which will also be reduced to 43%. A proxy will ensure that Tangen does not know what his personal wealth is invested in. 

“Nicolai Tangen has satisfied the Board’s requirements regarding the restructuring of his financial engagements,” Olsen said. 

Olsen also pointed out that the committee has never required that Tangen fully divest of AKO Capital. “I fully appreciate the Supervisory Council’s desire to remove risk,” he continued. “At the same time, I would emphasize that any responsible board of directors must make discretionary trade-offs between different types of risk and business objectives.” 

Related Stories: 

Norway’s Sovereign Wealth Fund Selects New Chief Executive

Unease Remains Around Incoming Chief at Norges Bank

Norges Bank Finalizes Contract with Controversial CEO Pick

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Despite Robust Returns, US Corporate Pension Funding Falls in July

Record-low discount rates erase 2.85% asset gains for the month.


A 39-basis-point drop in the monthly discount rate to a record-low 2.26% canceled out strong asset gains and lowered the funded ratio for the US’s 100 largest corporate pension plans to 81.1% at the end of July from 83.5% a month earlier.

According to consulting firm Milliman’s Pension Funding Index (PFI), the funded status of the plans worsened by $68 billion during July, while the deficit jumped to $388 billion as liability losses outpaced asset gains for the month due to a drop in corporate bond interest rates used to value the liabilities. The last time the funded ratio was this low was at the end of October 2016, when it was 79.0%. The current PFI funded ratio is down 8.7% from the start of the year, when it was 89.8%.

“July’s robust investment returns build on a strong second quarter for asset values,” Zorast Wadia, author of the Milliman 100 PFI, said in a statement, “but it wasn’t enough to create funding gains given we’ve had four months straight of discount rate declines, culminating with the lowest discount rate in the 20-year history of our study.”

The average 2.85% investment return for the plans raised the Milliman 100 PFI asset value to $1.659 trillion from $1.618 trillion at the end of June. This was significantly higher than the median expected investment return of 0.53% during 2019 as reported in the 2020 Milliman Pension Funding Study.

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The projected benefit obligation (PBO) also increased during July, raising the Milliman 100 PFI value to $2.047 trillion, which is the first time the PBO has cracked the $2 trillion mark.

Despite robust asset returns of 9.53% over the last 12 months, the funded status deficit of the 100 largest corporate pensions in the US has ballooned by $178 billion thanks to tumbling discount rates. Discount rates have plunged from 3.37% at the same time last year.  

Milliman forecasts that the funded status of the surveyed plans will increase to 82.3% by the end of 2020 and 86.0% by the end of 2021 if the companies in its index were to earn the expected 6.5% median asset return per the 2020 pension funding study, and if the current discount rate of 2.26% were maintained through 2021. For purposes of the forecast, Milliman assumed aggregate annual contributions of $40 billion and $50 billion for 2020 and 2021, respectively.

Under an optimistic forecast that includes interest rates rising to 2.51% by the end of 2020 and 3.11% by the end of 2021, combined with 10.5% annual asset gains, the funded ratio would climb to 87% by the end of 2020 and 102% by the end of 2021. However, under a pessimistic forecast that includes discount rates falling to 2.01% at the end of 2020 and 1.41% by the end of 2021, with 2.5% annual asset returns, the funded ratio would decline to 78% by the end of 2020 and 72% by the end of 2021.

Related Stories:

Corporate Pension Plans’ Funded Status Dips for First Time Since April

De-risking Corporate Pension Plans Is Getting Tougher

US Corporate Pension Funded Ratio, Risk Transfer Costs Decline in April

 

 

 

 

 

 

 

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