Okay, well, a big welcome, a big welcome, David and Jens. It's just incredible to have you both here because Stoltenberg, this is basically Stoltenberg's baby. You started the fund when you were the Minister of Finance in 1996, so 30 years ago. You invented the spending rule so that the politicians don't spend the whole fund, only 3% a year. Despite that, he's now accounting for more than a quarter of the Norwegian state budget. So really great to have you here. And David Solomon, a very important person for the fund because you helped us move the fund around and we interface with you in so many different ways. You helped us trade equities and actually Stoltenberg made a trade earlier today which went to Goldman Sachs. They accepted it. It went quite well, I think.
It was a very small one, I said.
They helped us trade the bonds, the corporate credit. They are doing a lot of the IPOs and we had a little chat here beforehand. Basically, David says that we are in all the IPOs because that's the way to make sure that it is a successful IPO. They have the deepest experience of any firm. We have a great relationship with you on the ECM side. We have big shareholders in Goldman Sachs. That's been a pretty good deal.
Absolutely. It's a very, very deep relationship.
So thanks for that. Now, first question is going to Stoltenberg. You've been a politician trying to...
I know. But first you were a politician.
Then you went to NATO trying to keep all these various countries working together. Now you're back in a government with a lot of different parties. What's more difficult? Is it to sort out the parties or the countries?
Well, I know that the correct answer is to say that it's more difficult to manage the world than to manage a minority government in Norway. But we're almost done with the doubt. Because the reality is that when you head an organization like NATO, there are some rules, some kind of stability in at least the institution. But in politics, it's much more unpredictable from day to day. But before I say anything more about that, let me just thank you, Nicolai, for what you do, for leading the sovereign fund in such an excellent way. And thank all the people in this room. Because what you do is of great importance and vital importance for Norway. And as Nicolai alluded to, now it's 27% of every krone we spend on a Norwegian budget is financed by the return from the sovereign fund. And I remember back in 1996, it was zero. And it has gone from zero to now to 3 trillion. And half of it, actually a bit more than half of it, is invested in the United States. And again, most people move forward in their life. I started to move backwards because I was Minister of Finance 30 years ago. And it's extremely great to be back and not least work again with a pension fund. And one of the most controversial decisions we made back in 1997, also the year after we had the first installment, was actually to decide that we should not only invest in fixed income, which was the plan, but also start to invest in equity. And now the pension fund has earned more money from the equity investments than from oil and gas. So I thank you all, a tank of insects, for everything you have given me. And we spend it, with what you say, great joy every day in Norway. Thank you.
David, you meet more CEOs globally than pretty much any other person. What's on the CEO's minds these days?
Sure. Well, first of all, thank you for having me. And deeply appreciative for our partnership, which is longstanding and very significant for Goldman Sachs and for your support and sponsorship. It's an interesting time. We had earnings today. And on our earnings call, a lot of the focus-- we had a really good quarter. We had the second best revenue the firm's ever had. We had the second best earnings the firm's ever had, the second best EPS the firm's ever had. By the way, the stock's down $30 on that. But it's down, I think, because there is an expectation that at the moment with what's going on geopolitically and what's going on in the Middle East, the forward doesn't look quite the same as what the last three months looked. And I tried on the call to in a very balanced way say, of course, I don't know what's coming. Nobody knows what's coming. But I think, for the most part, when you think about the things that drive our business, they're going on despite what's going on geopolitically in the Middle East. Of course, if oil prices remain high and elevated for a period of time, it will filter into the economy more and will have an impact and cause inflationary pressures and growth impacts. But CEOs broadly, and particularly here in the United States, feel like there's an opportunity to do things to drive scale because the regulatory environment is allowing scale of consolidation. And there is so much change coming with the acceleration of technology that CEOs are very, very front footed and very, very aggressive. And they're not letting the moment distract them from what they want to accomplish in the next three to five years. And that's very good for our business. And I actually think that's going to continue through 26 and 27, even if we have, in the short term, some sand in the gears from what's going on in the Middle East. And so CEOs are quite forward leaning at the moment and really realize that technology is just accelerating the pace of change. And they know that if they spend time being cautious, and they're not really investing and participating in that acceleration, and they're not really gaining scale, that they risk weakening their competitive position. And they don't want that to happen. And so they're kind of blocking out a bunch of the noise.
Yeah, I thought we should just do one interesting thing and just touch on the Middle East, because we have the two incredible angles here. Of course, from the security side, but then on the financial side too. So Jens, first, how do you read the situation in the Middle East just now?
Well, I read it as a very serious and dangerous situation. And of course, the war which is going on there is first and foremost about people who are killed in homes which are destroyed and all the human suffering. But as we have seen so many times before, wars have also economic consequences. And then we have seen the increase or the reduced supply of energy, the increase in energy prices, and of course also that many central banks and others also now predict higher general inflation and actually also some lower growth. And that impacts the global economy and it impacts also the Norwegian economy. Of course, how serious that will be depends on how long this war will last. And for a long time, there will be reduced supplies of oil, gas and other commodities from the Middle East. As a politician, but also as an economist, as I worked for many years ago as an economist, I'm a bit surprised that the markets have not reacted more. And David, why is that? Why haven't they reacted more?
I would share the perspective that I'm surprised that equity markets have a de-risk more. I do think markets, broadly, when you think about rate markets and the level of volatility increase in rate markets, that's been pretty significant over the course of the last month. Obviously, commodity markets have reacted, but equity risk pre-mia has not really reacted. And I don't have a good answer. I think what the market is telling you is the market is telling you that it thinks there'll be a resolution to status quo. I think most of us that are observers, either as politicians or as business people that are really thinking about the situation, think the risk of this being a longer conflict that leaves sand in the gears of economic activity for a more extended period of time is higher than what the markets discounting at the moment. So I don't have a crystal ball. The one thing I know is I don't know. But I do know that in the distribution of outcomes, the outcome that this takes a lot longer to resolve and it leaves sands in the gears that slow economic growth or put more inflation into the economy is not an insignificant small little tale. It's actually a reasonable possibility. And if it continues, you will see equity prices re-pricing over time.
Do you think it can amplify the-- what should we say-- in certain signs we're seeing in private credit through higher rates, more difficult environments?
I think when you're talking about private credit, you really have to recognize a handful of things. But one of the things I just say is credit broadly is an asset class, and private credit is a small part of the overall asset class of credit broadly. Direct lending, which is what's getting all the attention, is $1.6, $1.7 trillion of assets, about $230 billion of which is kind of retail focused. If we have an economic slowdown, losses will increase. But I think-- and I said this at our earnings call this morning-- I think the thing that people are putting in perspective, what does a cycle look like? Well, if you take a very difficult cycle, the financial crisis, all leverage lending through the financial crisis, the loss rate was about-- the default rate was about 10% and the recovery rate was 50%, which means the net loss rate was about 5% to 6%. And the coupons are 9% to 10%. So you have to keep that in perspective, both on the size of the asset class and the cycle. It doesn't have to be a systemic thing. Probably won't for that asset class. And even though losses go up because we have an economic slowdown, it doesn't mean through the life of the portfolio that the performance hasn't been reasonable. If you're collecting 10%, we've had a long cycle. If you collect 10% for 15 years and then you go through a cycle where you have a 5% or 6% loss, your returns are actually going to be OK.
