NBIM revises strategy with eye toward boosting outcomes | #conferences2021 | #cybersecurity | #conference

Norges Bank Investment Management has revised its strategy plan with a focus on optimizing processes, technology and developing employees, the in-house manager of the world’s largest sovereign wealth fund said.

The 2021-2022 strategy updates the 2020-2022 strategy, published in October 2019. The revision by the executive board, in close consultation with NBIM, followed a change in the management group of the fund, a news release said. Changes also stem in part from within the organization on how to improve individual, organizational and fund performance. Further details were not immediately available.

NBIM runs the assets of the Government Pension Fund Global, Oslo. The fund had 10.91 trillion Norwegian kroner ($1.27 trillion) in assets as of Dec. 31.

The revised strategy also still focuses on high performance, responsible investment and transparency.

For equities, NBIM will emphasize specific, delegated active strategies with less focus on allocation or top-down positioning, a document outlining the revised strategy said. Allocations to systematic factors and exposure to segments outside its benchmark index will be reduced, with exceptions for exposures to real estate, unlisted renewable infrastructure and emerging market debt. The fund’s reference portfolio — established to facilitate exposures — will no longer be a separate part of the investment process. Further details were not available.

Active positioning of investments in response to corporate actions and capital market events will increase to enhance portfolio returns and direct lending activities will be expanded, to diversify exposure and capture more income from securities lending.

Research will increase on negative selection for equities, including forensic accounting. “Our aim is to expand our negative selection by underweighting stocks we expect to underperform,” the document said.

External management of assets will also increase in selected segments of the market.

On the fixed-income side, NBIM will increase its use of standard derivatives to exploit price differentials between bond and derivative markets, as well as taking advantage of “segmentation opportunities.”

Up to 5% of the bond portfolio — 30% of the strategic asset allocation — will be invested in selected emerging market issuers. Associated currency risk will be actively managed. The current allocation was unavailable, but the previous 2020-2022 strategy document said emerging market debt would not be part of the fund’s benchmark index, although the reference portfolio would still include government debt issued in selected currencies with a target allocation of close to 1% of the fund.

Within real assets, the renewable energy portfolio will gradually be grown, with investments primarily in wind and solar power. The fund made its first unlisted renewable energy infrastructure investment, announcing Wednesday a 50% stake in the Borssele 1 & 2 offshore wind farm, located in the Netherlands. NBIM will pay €1.4 billion ($1.6 billion) for the stake.

For responsible investment, NBIM will further develop its strategy to analyze and address climate-change risks and identify investment and ownership opportunities. Executives will further develop responsible investment management in fixed income and real assets, the document said.

Also under responsible investment, NBIM will scale up its engagement with companies, holding boards accountable for the outcomes of their decisions, and will further reduce exposure to companies with unsustainable business models, reallocating capital to more sustainable firms.

Regarding technology, NBIM will develop a proprietary research and simulation tool to analyze the investment decisions it makes. Portfolio managers and traders will gain feedback “so that they can make better decisions in the future,” the document said.

Cybersecurity was also mentioned in the document, with NBIM acknowledging that cyberthreats “continuously pose an increasing risk. Our goal is to further increase our cybersecurity capabilities to a level where we can manage increasingly sophisticated threats. In this respect, we will work together with experts from other areas of Norges Bank in establishing a cyberthreat intelligence center.”

Regarding people, NBIM will gradually increase the number of portfolio managers based in Oslo. It will strengthen ties with educational institutions and hire more “top investment and technology talents”.

Finally, NBIM will increase both external and internal communications, with the aim of being “the most transparent fund in the world.”

Spokesmen could not immediately be reached for comment.

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