Good morning, good afternoon, and good evening to those tuning in remotely. I'm Alisa Martini, editor for EMA finance and markets for Reuters, and I'm honored to be hosting today a conversation with Nicolai Tangen, the CEO of the world's largest sovereign wealth fund, Norges Bank Investment Management. Tangen oversees the equivalent of just under 1.7 trillion, if I'm not mistaken, in Norway oil riches that are now invested across shares, bonds, real estate, and infrastructure. That's about $300,000 for every Norwegian, if I'm not mistaken. Quite a lot to go through today. The fund's investments account for almost, I think it's about 1.5% of the shares in all the world's listed companies. So your thoughts and views have impact on small, big business, and governments around the world, shaping views on global portfolios. And there's quite a lot here in Davos to be going through. I thought I'd start with one of the themes of this year's World Economic Forum here in Davos: artificial intelligence. UBS analysts in a recent note said that big tech firms will likely make more headway in monetizing their AI spending this year. AI monetization is poised to improve sharply this year, and they're seeing AI adoption picking up right across industries and broadening in 2025. I wonder if you share that view, and how does the actual adoption of AI across business affect how you look at investing in companies? Nicolai, welcome.
Thank you. Well, we are invested across the world. We are invested in the big AI companies in America; they are a large part of the portfolio, and we have, of course, made a lot of money there. Now, I think what is interesting is to look at the adoption of AI. It differs very, very much from sector to sector. Within research, within pharma, within defense, a lot of sectors where they have been, you know, very much integrated. Of course, self-driving cars and so on. But there are a lot of people who are slow in adopting it, and I think it's just a reflection of us as human beings. We are just really slow in changing our habits. And so what we are doing in our firm is that we are putting it in from, you know, the new starters. Pretty much everybody who joins us, they know how to code. We are really very loud about it from the top, and we are kind of really trying to get everybody to use it in the middle. So we asked everybody in the firm just before Christmas, how much have you improved your productivity this year by adopting the new tools? And on average, they answered 15%, which is a very big number. And we will continue that drive in 2025.
But if you look across businesses, where do you think, you know, which industries might have surprised you in sort of how quickly they might be looking at adopting AI? I mean, I've spoken to a few finance executives here, and I'm not getting a sense that 2025 will really be a turning point in terms of adoption.
No, I don't really think so. I think so far it's very much about automating tasks which are pretty boring. Now we are using it in things like helping us, it helps us to minimize trades, it helps us to deploy capital around month-end. But, you know, they are not really making autonomous decisions for us, for instance, yet. And I suspect that will take time, and that we will always have, you know, a human being controlling these things.
Right. You've spoken a little bit in the past about the links between climate and finance, and tech and finance, and all of these strengthening to some degree. Winner takes all in many industries. Largest companies now being linked very much the same risks, be it concentration geographically or supply chains. I wonder, as an investor, how you go about hedging and managing investments around these risks?
Yeah, I don't think you can hedge. If you're a large investor, I don't think you can hedge it because it's so integrated into everything you do. But you raised several different topics there, and I think what is interesting is that over the last few years, some of these risks are integrated in a different way than they were in the past. For instance, climate and finance, we're seeing from last year just how the climate is impacting finance. We're seeing how it impacts raw material prices through, you know, worse harvests and so on, and this is a pretty new phenomenon. Then we are seeing how tech and finance is being closer integrated, how tech and geopolitics are more integrated. So this is all coming together, and I would say just over the last five years, the whole investment universe and the way we look at the world has very much changed.
Do you think, what's the biggest takeaway from that? Is that the predictability of returns, or the predictability of where things are going, is that what's changed the most?
I think predictability is low. I think there is an argument for being even more broadly diversified than in the past, and even more long-term in your thinking.
And we'll get to some of that. I think, if I'm not mistaken, you've held a view for quite a little while that, you know, that returns would be low, and it hasn't exactly borne out that way. Risk assets have done very well. Where do you see the biggest risk to markets as we go into this year?
Yeah. Now you have kind of the things you know about, and then you have the things you don't know about. Now, if you look at the things you know about, there I would say inflationary pressure from what's going on in the US now, and whether you get to a point where investors think that government debt is generally too high across the world and they want a much higher coupon to finance governments. That's for sure a risk. But what really derails markets is the stuff you never thought about, the things you have never seen before that you cannot model. You know, whether it's a meltdown of nuclear reactors in Japan, or COVID, or the financial crisis, just the things you never had expected or thought about. And these things, they come up every so often, and for sure they will come up again.
A few things to unpack there. You mentioned sovereign debt. Where do you see that risk being most acute in terms of the, you know, the pressures on governments raising funds and investors taking a little bit of a pause?
Well, it's a phenomenon we're seeing across the world, right? I think IMF calculated that there was total government debt over 100 trillion dollars. I mean, these are huge numbers, and they just continue to increase. Now, it can go on for potentially, you know, a long time, but it may not.
But if you look at sort of geographically, is there anywhere particular that you're worried about? We've seen obviously some stress points in the UK, for example. We've seen it in France.
Well, you've seen it in many countries, yeah.
And then in terms of factors that you need to think about going into this year and further, one of the biggest risks that I think the World Economic Forum in its survey came up with, that people shared risk to the economy, is war. I wondered to what degree you factor in lasting peace in Ukraine and the Middle East going into this year?
Yeah, for sure, these wars are huge tragedies. They are humanitarian, you know, disasters in many ways. And we must not forget that if you just look at the pure impact on financial markets, it has been pretty limited. And so I think it's difficult to pencil in any outcome into your projections, and I'm not sure it really matters for financial markets, strangely enough. Unlike trade wars. Trade wars will be more detrimental for financial markets. Tariffs, very negative. And I think if we get big tariffs coming out of the US, it's negative for European companies. We've started to see that already. European companies have underperformed US companies. It's partly explained by that.
Oh, really? And what, how do you see those?
Well, it's been going on for, you know, more than six months, the fact that Europe has underperformed the US. Now, it's been going on, of course, for a much longer time than that. You go back, you look at the last 10 years, US companies have compounded at three times the rate of Europe. So it's been a big gap there.
Yes, we'll get to that in a little while. In terms of private versus public markets, I wonder how you would compare the risks and returns there at this juncture?
Yeah, so there is a discussion going on in Norway about that for the moment, so I should be a bit careful about talking too much about it. But what we have seen over the last few years is that the number of companies being listed on the stock exchange has been going down, and also that the concentration risk in the listed market is very high because some companies have grown to be very, very big. So probably the risk in the listed market is higher than in the private market just now.
No, right. But those discussions at home are ongoing as to whether the fund could invest in private markets?
Yeah, so there is a solid political process which is ongoing there.
Now, I wanted to sort of delve into some of the topics that, you know, geographic that we want to look at. I think it was 2023 when you closed your offices in China, and I think the decision was an operational one, from what I understood. But I wonder to what degree that also reflects your view on opportunities to invest in China. Obviously, not being there doesn't give you as much visibility on what's going on on the ground. I mean, there are some who say that, you know, the global growth engine for the last 20 years may actually end up suffering from a Japanification, if you will. I wonder what your thoughts are on that?
Yeah, I don't have a very strong view on China. We closed down the office we had there, that was just for operational reasons. We moved people and systems to Singapore, where we already had a big operation. So I don't think you should read anything into that. Now, the way I look at investments generally is that I don't feel we invest in China, we invest in Chinese companies. We own less than a third of the companies listed in China, and we are seeing, you know, good investments in China as we do elsewhere.
And what's your sense of the economic recovery there? And what are you sort of picking up?
Well, what we hear is that it's slow, right?
And do you think China will need to put in more stimulus?
I haven't got a strong view.
Okay. Now let's move closer to home. I think a third of your funds, if I'm not mistaken, are in assets in Europe, versus about half in the US. And this is a region that, you know, for some time now has been marked by stagnation economically, political instability to some degree in the core economies for sure, and lack of productivity growth. I'd be curious to hear your message for von der Leyen and the incoming German Chancellor. What are the top priorities for the EU, and how do you get there?
Yeah, first, these are good politicians. I never tell anybody anything, they know very well what to do. But of course, we have the Draghi report as a backdrop here, so it's easy to agree with that. The first thing I want to say is that we got some amazing companies in Europe, right? We got leaders in luxury goods, we got great industrial gases, you know, we got some great pharma companies, industrials in Sweden and so on. We got a lot of good companies, but the life is not being made easy by all the regulations. And, you know, I look at regulations a bit like, so you come into a bar, okay? Now every bottle tastes really good on its own. It's just that when you pour all of them into a bucket, it doesn't taste so good anymore. And it's the same with regulation, right? Each one of them, they make eminently sense, and they're all very clever and good and well-meant, but it's just like the total burden is huge.
So what would the roadmap be, in your view, for the EU? Like, hold new regulation?
And earlier today, I met with, you know, the commissioner who's in charge of simplification and so on. So they are on it, but it's not easy. I mean, it's very complicated to simplify.
So let's see how it goes. And this is, of course, being made even more important because they're rolling back regulations in the US, you know, fast. And so it makes it more important to do it in Europe as well. And, you know, we got new regulations coming in, like for instance, climate reporting, really, really important. But you have alternatives between something which is very complex, called CSRD, where you have to report on 800 different things, or you have ISSB, which is much simpler and which has been adopted by other countries. So, you know, you have the choice just how complicated you want to make it.
And then in terms of industrial policy, is there a particular area you think, you know, really ought to take the top slot? I mean, is it energy, you know, AI will be soaking up more energy, is it defense? What is it that Europe should be prioritizing, would you say?
Well, I think it's interesting because historically, the EU was focusing a lot on competition and to making sure there was huge competition in all areas in all countries, right? So you wanted to have three telecom operators in each country, so you end up with nearly 30 in the whole of Europe, whilst you have three in the US. So you end up, same in the banking sector, you want to have a lot of banking competition in each country, but it means that you've hardly got any very large European banks. And that focus seems to change a bit now. So there is more focus on making kind of stronger individual companies which can compete with the American companies.
Speaking of competing with America, I wonder if we could talk a little bit about Britain. I believe you made a fresh investment in real estate there this week.
We have great real estate investment in London, for instance. But we love it, you know.
We've obviously seen some tensions in the markets of late, particularly in the bond markets. And some have remarked how, you know, Brexit Britain is vulnerable to these shocks because it's a less core asset post-Brexit. And if I look at your numbers, I think Britain represented about 9% of the fund in 2016, it's now about 6%, which reflects the weighting. But do you share the view that Britain risks being less core, and what are the implications of that for Britain in the long term, particularly as, you know, we've got a new US administration and potentially a new trade war?
Yeah, first of all, I love Britain. I lived there for 30 years, you know, fantastic place. But what has been happening, of course, is that many companies which previously were listed on the London Stock Exchange have moved to America for several reasons. It's easier to pay, you know, executives and the board higher salaries. Some people argue that there were higher valuations there and so on. So there has been a move, right? So there are fewer listed companies, and the market capitalization of the stock exchange has shrunk, and that's reflected in our holdings as well. Now, we don't invest in, you know, England as such, or Britain as such, we invest in the companies there. You got great international companies, and you got great consumer good companies, and, you know, we think you have good companies there.
What should the Chancellor be doing, though, to get the economy growing again?
Oh, she knows much better than me.
One place that doesn't have an economic growth issue is the US, of course. About half of your investments are there. What do you need to think about to spread the risk, and is there thinking about perhaps rebalancing the portfolio a bit, given the concentration there?
Well, you do have a big concentration risk in the US. The thing is that you have a big concentration risk in the world generally in pretty much everything, and it's because this winner-takes-it-all situation, right? So in pop music, there are more people listening to Taylor Swift than all the jazz music and classical music combined. You know, in football, our fellow Norwegian top scorer Haaland, you know, he's making tons of money, much more than other people, just because he's so good. So this winner-takes-it-all is kind of coming into all parts of the world. It's in tech companies more than other places because you have these platform structures. So, you know, you're on Facebook because there are so many people on Facebook. You take an Uber taxi because there are so many of them, right? So you get these, the fact that they are big makes them even bigger. And then in AI, it's even more extreme because it's so expensive to develop these models. So, you know, this is a development which has been going on for some time, well, for a long time actually, and I just think it's difficult to know where that's going to end.
But are we at a point of an acceleration, do you think, on that feature?
No, it's been going on for a long time, yeah.
I did want to ask you what your views on the US, and, you know, we've obviously had a change in administration. And you've got the outgoing administration talking about an oligarchy potentially sweeping into America. There has been, you know, concerns about potential influence of business on politics. How does that affect your view on the US as an investment proposition?
Yeah. So just to make it clear first, there are many things we do not agree with. Okay, I mean, we do not agree that one should roll back climate efforts, that one should stop looking at diversity issues and so on. So there are a lot of these things which we think will be negative in the long term. But what we're seeing, and also some of the proposals there would be negative for European holdings. So that's the negative side of it. When you look at the pure American companies and how they are performing financially, CEOs are very optimistic. I mean, it's unbelievable. In Davos now, the world is just like totally split. You meet the Americans, it's just like a real party. You meet the Europeans, funeral. You know, it's just like very, very distinct. And I met with more than 50 American CEOs in Q4, and nine out of 10 say that the business is good and that they're really optimistic, partly because some of the regulations are being rolled back, right?
