Norges Bank CEO Nicolai Tangen Talks Tech-Driven Loss
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Bloomberg Audio Studios. Podcasts, radio, news. I'm pleased to say the Norwich Bank Investment Management CEO, Nikolai Tangen, joins us now for more. Nikolai, welcome back to the program, sir. A lot has changed since we last spoke. Attitudes towards U.S. assets are starting to shift. I just wonder how you and the team have started to think about that, how you're debating that issue internally over in Norway.

Well, we have a very long-term view on what we do. So, we are invested with roughly half the fund in the US and we are here for the very long term. So, we have not made any major adjustments lately. So, Nicolae, can I read into that that you view this as just a shock to the cycle and maybe not a long-term shock to the system?

Well, I think it's very, very difficult to say because when we make scenario analysis here, one of the negative things that we see is that if you get a disentanglement between the two major trading blocks, that's really, really negative because it slows down growth, increases inflation and so on. So it is potentially one of the really negative things that can happen here. So I think the outlook for markets are very, very uncertain.

Given that there has been a shift, Nikolai, to move at least a little bit of assets among large asset allocators out of the United States, diversify to places like China, to India, to Europe. Why aren't you doing the same and shifting to benchmarks that have a little bit more exposure elsewhere? Well, we actually are extremely well diversified already.

You know, we own one and a half percent of all the listed equities in the world. In Europe, we have more. We have close to three percent. And so in the U.S., we have one and a half percent. And we also have the same in the rest of the world. So I would say we are well diversified, 70 percent equities, 30 percent bonds. And we also have a very, very good real estate portfolio, which is coming in really handy here.

Well, Nikolai, you said previously this morning when you were speaking to media in Oslo that you will correct the underweight to U.S. stocks. So you are planning to reinvest in U.S. stocks, even though you are surprised that we haven't seen even more weakness. Why are you redeploying all of the money that maybe has lost in terms of benchmark allocation to U.S. equities, given some of these larger uncertainties?

Well, the kind of the increased allocation to the U.S. is part of a program that we've been doing for quite some time. We still have some work to do here and that we will continue to do. And we think the large American companies are just great long-term investments. And so we are very happy to be invested there. What sectors? Can you give us a little bit of a hint of specifically the sectors or the companies you're interested in the United States?

Well, we are quite index near in how we are invested in the US. So we typically have large holdings in the big tech companies, in all your large companies, really. And we made a lot of money there over the last few years. Of course, so far this year, it's been negative. But when you look in comparison to the gains we've had the last year and the year before, we've given back in a way, surprisingly little, I would say.

What about defensive companies like Lockheed Martin? Is that going to be open for business when it comes to the sovereign wealth fund? Well, we invest in a lot of different industries. We have less exposure to the defense industry, but we are in a lot of the defensive names as well.

Nikolai, one word you often use with us is we are diversified. I just wonder if the meaning of that word has shifted over time, particularly this year. The Treasury market is behaving in unpredictable ways. When the equity market is falling, Treasury markets have fell as well. In fact, those two asset classes are trading in lockstep at the moment. It's as if investors are treating all dollar-denominated assets as one bucket. And I just wonder, Nikolai, what that means for how you think about diversification this year and beyond.

Yeah, there were some times when this type of diversification worked less well. We had the same type of situation two, three years ago. And so some years it works, some years it doesn't. I think over time, if you have a really long-term time horizon, I think it's the right positioning to have.

We've seen over the last month or so that some investors were trying to understand whether what was happening in the Treasury market was just trades unwinding, some hedge funds blowing up, or, Nikolai, whether it was a reassessment of the safe haven status of the United States. Nikolai, what's on your dashboard to help distinguish between one and the other? What do you think it was? What do you think it is? Well, I think it's a very, very complicated question. I don't think it's only one thing. I think it's a cocktail of all the kind of things you...

you mentioned. Now, so far this year, we have been neutral to the U.S. Treasury market. We have not reduced or increased positions. So we have certainly not caused that move. Do you have a sense, Nikolai, going forward of whether we are entering a more inflationary period given some of the deglobalization that we're seeing, some of the fissures and some of the kinks that are emerging in the supply chain system?

Yeah, I think we are potentially going into a more inflationary situation. It is kind of a pretty obvious consequence of higher tariffs.

And, of course, inflation is really negative for markets. So I think that's potentially one of the big risks that we are seeing just now. Interestingly, we just yesterday released a podcast with Ken Rogoff, kind of the world leading specialist, I guess, on inflation. And he's also very worried about this particular fact.

Well, I guess just to build on what John was asking about, the idea of diversification, and you have been about neutral on U.S. bonds. There has been a feeling that maybe diversification, especially in an inflationary environment, requires some gold, requires some alternative assets that might be asset-based funding that have different streams of diversified revenues. Is that your take on it, that you just on the margins want to pick up a little bit more gold or diversify a little bit more in some of these other asset classes?

Yeah, so we have a very strict mandate here from the Ministry. So we cannot buy gold.

And I do think gold sometimes is a bit difficult to understand what the intrinsic value is of gold. We also don't do cryptocurrencies, for instance. But when we look at alternative assets, I would say in a market like this to have real estate, that's very good. We have just under a thousand properties around the world, you know, large holdings in Manhattan, Boston, Washington and so on. And so I think that's going to be a pretty good place to be going forward.

Nikolaj, appreciate your take at a difficult time. Thanks for your time this morning. Nikolaj Tangen there, the Norway Wealth Fund CEO.

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