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Newsmakers

World’s Biggest SWF Grows to $1 Trillion

Fund returned 499 billion kroner in H1 2017.

By Chris Butera

Norway’s sovereign wealth fund (SWF) grew to $1 trillion Tuesday, surpassing expectations from when the fund first transferred oil revenue in 1996.

“I don’t think anyone expected the fund to ever reach 1 trillion dollars when the first transfer of oil revenue was made in May 1996. Reaching 1 trillion dollars is a milestone, and the growth in the fund’s market value has been stunning,” Yngve Slyngstad, Norges Bank Investment Management’s CEO, said in a statement.

According to the fund’s administrators, Norway’s SWF hit $1 trillion at 2:01 a.m. local time. It is now roughly the size of Mexico’s economy.

Norges bank attributed the increase of the US dollar value of the pooled capital as a factor due to bullish 2017 equity markets and a strengthening of the world’s major currencies against the dollar.

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In the first half of 2017, the fund returned 499 billion Norwegian kroner. According to Norges Bank, the largest Q2 growth contributors were from Nestle, China’s Tencent, and Swiss company Novartis.

At the end of June, the fund owned 200 billion kroner in real estate, including properties in New York’s Times Square, London’s Regent Street, and Paris’ Champs Elysees.

The rainy-day pot was established in 1998 to invest revenue arising from oil extraction.

Since January 1998, the fund has generated a 5.9% annual return.

However, the fund’s use for public spending has caused concern among banks and analysts. In February, the central bank governor warned that unchecked public spending could make Norway too reliant on an uncertain source of income.

“Regardless of which government we get, the challenge will be to use less oil money,” Erik Bruce, chief analyst at Nordea Markets, said in a statement earlier this month.

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Home > News > Newsmakers > Harvard Endowment Returns ‘Disappointing’ 8.1% in 2017
Newsmakers

Harvard Endowment Returns ‘Disappointing’ 8.1% in 2017

CEO says portfolio has ‘deep structural problems.’

By Michael Katz

Harvard University’s $37 billion endowment returned 8.1% for the fiscal year ended June 30, compared to a 2% loss in 2016. Despite the turnaround, Harvard Management Company (HMC) CEO Narv Narvekar called the gains disappointing.

The annual gains were attributed to strong returns from public equity, private equity, and real estate investments, while natural resources lagged.

“Our performance is disappointing and not where it needs to be,” said Narvekar in a letter addressed to the Harvard community. “The endowment’s returns are a symptom of deep structural problems at HMC and the resultant significant issues in the portfolio. These matters have challenged HMC for years.”

He said that the issues that have hurt the endowment’s performance in the past will continue to negatively impact returns in the near term, and that they will require time to overcome.

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“The HMC Board of Directors and I expect that it will take a number of years to reposition HMC in order to perform up to our expectations,” Narvekar said. “As those highly familiar with endowment investing understand, change takes time.”

In the letter, Narvekar also outlined some significant changes being employed that HMC hopes will improve the endowment’s performance.

Narvekar said HMC changed its investment approach from focusing on specific asset classes toward a generalist investment model in which all members of the investment team take ownership of the entire portfolio.

“The team will have a singular focus: the performance of the overall endowment,” he said. “We will engage in focused debate and discussion about investment opportunities, both within asset classes and across the investment universe. Other highly successful endowments have used elements of the generalist model, and HMC will create its own version.”

HMC has also created a new risk allocation framework that will replace the asset allocation approach it previously used. Narvekar said the model is different from past HMC approaches, and that the first phase of building and integrating the framework into its investment decision-making has been completed.

“We will determine with the University’s financial team the appropriate risk level for Harvard,” he said. “Our dialogue with this team is just beginning, and we expect it to grow over time, allowing us to achieve this important understanding and objective.”

Additionally, Narvekar said HMC has also largely exited internal management of public markets assets, despite the lower fees and expenses associated with the practice.

“I strongly believe that the changes we are making as an organization will produce better returns for Harvard in a more efficient manner over time,” he said.

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