This Sovereign Wealth Fund Found More Performance Success with Privately-Owned Fund Managers
Posted on 04/16/2020
Norges Bank Investment Management (NBIM), which manages Norway Government Pension Fund Global, shared its experiences with selecting external fund managers in a new report. NBIM has tracked a number of manager characteristics that correlate with excess performance. NBIM analyzed the performance of asset managers in relations of ownership structure and the size of the asset management firm.
NBIM had a superior experience with privately-owned asset management firms where the investment staff have direct ownership in the business. NBIM believes that this leads to a better decision-making investment culture. Privately-owned asset managers can also attract more talented investment personnel and have better incentive structures. For NBIM, “privately owned management firms have delivered a 2.6 percent annualised excess return for the fund, while publicly listed and insurer- or bank-owned managers have delivered 1.1 and 1.8 percent respectively,” according to the NBIM manager report.
NBIM also makes the note that the outcome is regardless of the type of strategy, which is all related to listed equity investing.
Asset Manager Firm Size
NBIM analyzed the different sizes of fund managers. NBIM realized that small to medium-sized external fund managers generate annualized excess returns of 2.6% and 3.5% respectively. Larger firms have delivered 1.7%. NBIM states, “Specialist firms focusing on being experts in a given country are often found among the small- and medium-sized segment of the asset management industry. Such firms thus manage more assets for us, have delivered a larger percentage excess return and have consequently delivered the most excess return measured in kroner. It is our experience that the smaller specialists usually deviate more from the benchmark than larger institutions. This is often due to the fact that the fewer assets they manage, the more freedom they have in investing in concentrated portfolios across the full market-cap spectrum. Even when taking the increased small-cap exposure into consideration, we see that small and medium-sized firms have delivered better results for us, with a higher information ratio of 0.7 and 0.8 respectively than the larger institutions at 0.6.”