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How Norway spends its $882B global fund

economist.com

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Re: How Norway spends its $882B global fund

#51

Post by jhj »

Havoc wrote: post #20
kristofferR wrote: post #3

"It is run frugally and transparently" is a dubious claim, at least according to claims made on NRKs Folkeopplysningen (a show like Penn and Teller: Bullshit, just better). The fund spends a lot on being actively managed, one manager received ~$60 million in bonuses in 2010. However, they won't reply when people ask if bonuses are actually financially beneficial. https://tv.nrk.no/serie/folkeopplysningen/KMTE50009215…

I'd venture that at that scale you don't really have much of an option except going active. Passive is essentially swimming with the stream, but what if you're big enough to affect the stream...you're kinda active in a way already right there.

Eh, the money is going in and eventually coming out over lengthy timescales. If active management means dipping into a smaller number of tradable assets, then the effect would only be worse. If they have to split it between a large number of active managers with different strategies because their fund is too big, then they might be de facto indexing the broader market while paying over the odds for it.

For assets traded on an exchange at least (e.g., not directly-invested real estate), it's more of a logistical problem than anything else: how do you track indices that you want to track by dripping money into and out of the market, both trying not to affect supply/demand too much, but while not deviating from the index too much. It's the same problem that a BlackRock or Vanguard face but at slightly smaller (!) scale, and one more for computer programmers with knowledge of market microstructure than people that demand outsize bonuses who think they have "alpha" and get lucky (or not).

Re: How Norway spends its $882B global fund

#52

Post by groby_b »

tormeh wrote: post #23
avn2109 wrote: post #14

Earlier quoted context omitted.

>> "...impossible..." https://en.wikipedia.org/wiki/Renaissance_Technologies "...famed for one of the best records in investing history, returning more than 35 percent annualized over a 20-year span..."

People have done it before. It has always turned out to be luck. Fantastic track record until they cease being lucky. So, cynicism and economic orthodoxy aside, that sounds like a really cool company. Has anyone tried just tossing a big dumb neural network on stock data and investigated whether it can make money? It sounds very obvious, but a quick googling returns little. But I guess the investment industry is prett…

https://xkcd.com/1570/

Re: How Norway spends its $882B global fund

#54

Post by alasdair_ »

xiaoma wrote: post #43
finstell wrote: post #11

Earlier quoted context omitted.

> 20-30-40% per annum, for over 20 years It is impossible, at least continuously. Nobody has ever managed to do that. You'd be lucky if you could beat the market by a few points on average over a 20 years time period. Compensation well for good performance does not make sense when you aren't penalized for losses.

That's just not true. Joel Greenblatt's fund beat an annualized return of 40% from 1985 to 2006. Carl Icahn got over a 30% per year annualized return from 1968 to 2011 . That's almost 50 years!

Right, and a lottery winner who wins a $500MM jackpot on a $1 ticket has annualized return of even more than that, when annualized over the same timescale.

None of that matters if you can't pick the winning players in advance. With enough variance and enough players, someone will eventually have double-digit annualized returns over decades, it doesn't mean that they are necessarily superb investors.

Re: How Norway spends its $882B global fund

#55

Post by groby_b »

dogma1138 wrote: post #15
harryh wrote: post #2

882 B / 5.2 Million ~= $170k for every citizen of Norway. At 4% a year that's $6,800 each in annual income. Not bad!

Not bad, but not enough to cover the current levels of household debt in Norway, while a large portion of the debt is tied to mortgages the mortgage debt in the Norway have been increasing faster than income for quite a few years now. http://www.tradingeconomics.com/norway/households-debt-to-gd... This isn't a problem unique to Norway, Norway is just one of the biggest offenders, even in the Nordic countries there is…

> one of the main contributors to Germany's low household debt is a 10 year cap on mortgages.

Where did you get the idea of that cap?

10-year mortgages were the common case, but there's no actual cap. (See here for current mortgage interest rates up to 30 years: https://www.baufi24.de/tagesaktuelle-hypothekenzinsen/)

Re: How Norway spends its $882B global fund

#56

Post by rtpg »

alasdair_ wrote: post #53
Cyph0n wrote: post #45

Earlier quoted context omitted.

That's why you're not picking stocks for them ;)

If he picked randomly, it's entirely possible that he could do a better job :)

If this fund's actual purchases are available, this is a thing you can check.

Would make for a good headline, too. "$60 Million for a coin flip!"

Re: How Norway spends its $882B global fund

#57

Post by 010a »

tim333 wrote: post #44
Havoc wrote: post #20

Earlier quoted context omitted.

I'd venture that at that scale you don't really have much of an option except going active. Passive is essentially swimming with the stream, but what if you're big enough to affect the stream...you're kinda active in a way already right there.

Yeah but I'd pick stocks for them for a thousandth of that.

The difference between $60k and $60M, for a fund nearly a trillion dollars large, is worth it if that person worth $60M can eek out even a few extra basis points in returns. Despite what many people believe, there are those out there who have an eye for value, and _can_ pick stocks.

Re: How Norway spends its $882B global fund

#58

Post by robotresearcher »

avn2109 wrote: post #14
finstell wrote: post #11

Earlier quoted context omitted.

> 20-30-40% per annum, for over 20 years It is impossible, at least continuously. Nobody has ever managed to do that. You'd be lucky if you could beat the market by a few points on average over a 20 years time period. Compensation well for good performance does not make sense when you aren't penalized for losses.

>> "...impossible..." https://en.wikipedia.org/wiki/Renaissance_Technologies "...famed for one of the best records in investing history, returning more than 35 percent annualized over a 20-year span..."

There are millions of investors. The chances of a few outliers getting a long streak of returns are pretty good, even if they picked stocks at random. It's impossible to tell in advance who those lucky parties will be. But their existence is very likely.

Re: How Norway spends its $882B global fund

#59

Post by 010a »

kristofferR wrote: post #12
finstell wrote: post #11

Earlier quoted context omitted.

> 20-30-40% per annum, for over 20 years It is impossible, at least continuously. Nobody has ever managed to do that. You'd be lucky if you could beat the market by a few points on average over a 20 years time period. Compensation well for good performance does not make sense when you aren't penalized for losses.

Yeah, the oil fund averages just 0.25% above index, and that's without the extra cost of being actively managed factored in (although its huge size probably makes it impossible for it to be passively managed).

Are you aware how much 0.25% of $800 billion dollars is? Now, go ahead and complain about a $60M compensation.

Re: How Norway spends its $882B global fund

#60

Post by jellicle »

010a wrote: post #57
tim333 wrote: post #44

Earlier quoted context omitted.

Yeah but I'd pick stocks for them for a thousandth of that.

The difference between $60k and $60M, for a fund nearly a trillion dollars large, is worth it if that person worth $60M can eek out even a few extra basis points in returns. Despite what many people believe, there are those out there who have an eye for value, and _can_ pick stocks.

> there are those out there who have an eye for value, and _can_ pick stocks.

There's simply no evidence that is true at all. Every study of this issue says the exact opposite: there's no one out there who can pick stocks.

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