Norway's massive sovereign wealth fund, the Government Pension Fund Global, is facing intense criticism. Its substantial investments in listed real estate have generated heavy losses. The fund's leadership under CEO Nicolai Tangen is now under fire for what experts call a failed speculative bet.
At the turn of the year, the fund held listed real estate shares worth 359 billion Norwegian kroner beyond its benchmark index. This strategy has backfired dramatically. The relative return on listed real estate has averaged minus 6.5 percent per year since 2017. Compared to alternative placements in stocks and bonds, this represents a loss of 75 billion kroner. Combined with unlisted property, the total relative loss reaches 120 billion kroner.
'This has been a speculative gamble that has gone terribly wrong,' said finance professor Richard Priestly in a statement. 'The lack of control the Ministry of Finance and the central bank's board has over what the fund does with people's money is shocking.'
Halvor Hoddevik, executive chairman of Rann RĂĄdgivning, was more blunt. 'The fund's focus on real estate in general, and listed real estate in particular, has been an economic disaster. The losses are enormous and completely unacceptable.' He argues the real estate focus must be wound down and that Tangen, as the top leader, must take responsibility.
The fund's management acknowledges the poor performance. In response to questions, Nicolai Tangen stated in an email that 'the results in real estate management have not been good enough, and we are not satisfied.' He outlined a series of corrective actions already underway.
'We have therefore taken important steps and have worked over the past year on changes in management, organization, and the real estate strategy,' Tangen wrote. The fund has installed a new head of real estate based in London. It has also moved its real estate management from Oslo to its offices in London and New York to be closer to key markets.
Tangen pointed to major market shifts since the fund began investing in property. He specifically cited the rise of remote work and e-commerce. 'Our strategic choices, including heavy weight on traditional sectors like office and retail, a limited number of countries and cities, and a focus on direct investments, have resulted in a portfolio vulnerable to these changes,' he explained.
He also noted that the relative return figures compare real estate to investments in stocks and bonds. 'The numbers must therefore be seen in the context of strong equity returns in the period,' Tangen added. A new strategic plan has just been approved by the board of Norges Bank and will be presented in December.
This situation raises serious questions about oversight. The fund is ultimately governed by the Ministry of Finance and the Storting, Norway's parliament. The sheer scale of the losses, measured against Norway's vast oil revenues from fields like Johan Sverdrup and Troll, demands political attention. It touches on core issues of Norwegian economic management and the long-term stewardship of the nation's wealth. The fund's performance directly impacts the state budget and future public spending. Lawmakers in the Storting building will likely demand clearer answers on how such a large deviation from the benchmark was allowed to persist with such poor results. The coming parliamentary hearings on the fund's management could be contentious.