Norway’s oil fund

Norges Bank Investment Management is transferring custodianship of its huge investment portfolio from JPMorgan to Citigroup. Norges Bank is the central bank of Norway. Its oil fund is the world’s largest sovereign wealth fund.

Norges Bank Investment Management … holds on average 1.3 per cent of every listed company globally.

In recent years, the fund has made a concerted push into emerging markets – they now account for about 10 per cent of its $530bn equity portfolio.

The Norwegian fund has investments in 82 countries and 44 different currencies as it seeks to diversify away from what was once the almost total dominance of dollar, sterling, euro and yen assets. It now owns 1.4 per cent of every listed company in the developing world. ….

NBIM prefers its custodian to have proprietary operations in most countries it invests in, rather than having to go through partner banks in more remote regions, which is a more cumbersome process, people close to the decision said.

Citi seen as the most global in the world, with operations in 101 countries. It offers proprietary custodian services in 62 markets.

Daniel Schäfer and Richard Milne, “Citi wins Norway fund business from JPMorgan“, Financial Times, 5 May 2014.

From this article, I learned that Norway does not pay for active management of its equity portfolio. Citigroup, like JPMorgan, is expected to refrain from picking stocks. By purchasing a fixed percentage of each listed company in the world, and rebalancing periodically to restore percentages, the custodian tracks world equity markets, rather than attempt to outperform them.

The underlying investment philosophy can be summed up as follows: (1) Diversify. (2) Keep fees low. Market prices fluctuate. Management fees are constant, and must be paid regardless of a fund’s performance. Active management (attempting to outperform the market) is always more costly than passive management (tracking market returns).

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