The Exchanges

Q I'd love to go into the history of this pool of assets. It's not an old pool, as it turns out. So how did the Sovereign Wealth Fund come about?

A It's an amazing story. And to really understand the background here, you have to go out to the North Sea, cold, wet day in October of 69. You have to go aboard the drilling rig, Ocean Viking, and they were drilling the last well in the North Sea. And if they didn't find oil, they would pack up the toys and go home. And two in the morning, this guy, Salvisen, was told to wake up the platform chief, Ed Seaburn, and Ed Seaburn was really fed up. He was just like, Salvisen, why do you wake me up two in the morning? You better have a good reason. And did he have a good reason? They had just struck oil. Ecofisk, the biggest offshore oil find ever. And this was announced then to the Norwegian population the day before Christmas Eve, and wow, what a Christmas gift, you probably would say, but hey, not necessarily. In a lot of countries, it had been a curse, because it had led to corruption, croning out of industries, and these kind of things. But then, Norwegian politicians did something really clever. They decided to set up this fund. First deposit, two billion Norwegian kroner, has grown to fifteen thousand billion. It's been just an unbelievable travel. Very good footwork from the politicians, the Ministry of Finance, they've done a very important job, the people who worked in the fund, and so on. It's been an amazing journey, and now the fund is The biggest single shareholder in th…

AI assessment note: “Norwegian politicians did something really clever. They decided to set up this fund.”

Q How long did you stay there before going over to the buy side?

A Five years. I worked at a hedge fund called Edgerton Capital, was one of the first hedge funds in Europe, was ran by and started by John Armitage and Bill Bollinger, really superb people. We talk about AAA in financial markets. I think if you talk about people, they are Really triple A plus. And I think we underestimate how important apprenticeship is for investing. And starting a firm is not something you can just do. You need to learn from something. You need to have credibility. You need to know what you do. You need to know about risks. You need to know about how to treat clients, all these kinds of things. It's not something you just come up with. You need to learn from somebody. And John and Bill were just really instrumental in teaching me these kinds of things.

AI assessment note: “Five years. I worked at a hedge fund called Edgerton Capital”

Q So in that time at Edgerton, what did you learn about equity research that was different from what you'd experienced before?

A I would say John Armitage is an extremely thorough guy with incomprehensible work ethic and drive, and a unique understanding for business models and what make companies successful. Very good with people. So I would say the most important thing was probably to learn what is a good business? What are important modes? What is operation leverage? What does it really mean? How much of your incremental revenue drops down to the bottom line? These kind of things. The importance of balance sheets and strong balance sheets. And just how to just ask questions and follow up with companies. I was a huge learning. Bill Bollinger, he was a bit more on the risk side. I learned a ton from him as well. But I think another thing which is important is you have to make hay when the sun is shining. It's the easiest thing is just to hedge away all types of risks. It's to hide. It's to spend all your money on put options to just protect it on set. But there are times where you just have to run naked. You have to take away the protection. You have to have market risks. And that's a real skill set. When to take away the breaks and go for it. Because there are some periods where you make all the money and you have to be in the market then.

AI assessment note: “most important thing was probably to learn what is a good business?”

Q When you spend a lot of time building up what became very successful, twenty billion dollar asset management organization, you've built the culture, you have portfolios of companies that you think are some of the best in the world. How do you leave that?

A I felt that the learning had flattened out a bit. I felt that it was time to pass it on to the next generation. We had spent a lot of time on preparing the rest of the team to take over. I probably spent eight years preparing their transition, and I just wanted to move on and do something else. I really feel that life is very short, and that we need to learn, and that we need to experience as much as we can whilst we are still here, and we are not here for long. And AKO had been very successful. I thought if I could leave that to the next generation in a successful way, that would be fantastic because that rarely happens in this industry. And then I could go on to do something else. Now, I wanted to go back to university to study full time. I thought, hey, you know what? I'm going to IKEA. I'm going to buy some cheap furniture. I'm going to rent a flat. I'm going to go to jazz clubs every night. I'm going to be a student again. And hey, that's the best thing you can do. So then this job in the sovereign wealth fund came up and destroyed that whole dream. And why did I think that job was cool? First of all, I love asset management. I think finance is the most fun thing you could do. If you think about what is it to be doing asset management? It's everything you eat, wear, drive, consume. It's made by a company. It's the corporate culture. We talk about that. It's the market with…

AI assessment note: “I felt that the learning had flattened out a bit. I felt that it was time”

Q As you mentioned so many times when there's some type of sudden wealth, whether it's a country, a family, an institution, it doesn't go well. How did the government set up the governance structure of this pool of capital to allow it to succeed?

A Yeah, that's a very good question. So these type of funds typically don't last for a very long period of time. The fund is owned by the Norwegian people in a way. It's taken care of by the parliament. The mandate is given to the minister of finance. They give it to the central bank. And then we sit inside the central bank. So they give the mandate to us. So it's a pretty complicated governance structure, but it works really well. And it means that we are, in a way, a couple of steps away from the politics. We are not a political fund. We are not used as a political tool. Very important. We have one overriding goal. It's to make money. But we also are making money in a sustainable way. So ESG is important for us.

AI assessment note: “we are, in a way, a couple of steps away from the politics.”

Q What are some of the other benefits you found from being open and transparent?

A I think when you are, it makes it easier to align the organization towards the same goal when you all publicly go the same way. I think it forces you to be even more honest with yourself, not to change your mind, not to have a mission drift, these kind of things. I think openness is only positive, and we are as open as we can. And we even publish all of our holdings once a year. And I think probably we can do it twice a year. I don't think we can do it more often than, because then you can start to gauge how we trade. And so that's not great, but apart from that, we can do it. We publish what we talk to companies about in our company meetings. Check out our website. It's incredible.

AI assessment note: “makes it easier to align the organization towards the same goal”

Q You mentioned wanting your team to think even longer-term than they had before. How do you instill long-termism into the investment process?

A It's not easy, because we are short-term in our thinking. Imagine, Ted, you come home and tell your partner, or your partner asks you, hey, what did you do today? Nothing. Day after, nothing. Day after, nothing. Day after, nothing. It doesn't feel good. But in investing, the best thing you can do sometimes is not to do anything. So one thing which I think is interesting is inertia analysis, right? You take your January one portfolio, see how it goes if you didn't change the thing. What would have been the results? And then you look at what you actually achieved and the difference in what you have subtracted or added by going to the office every day. And you'd be surprised how often you have subtracted value by going to the office. You should have been staying on the beach. And that's a pretty humbling exercise to go through. It's tough not to do anything. I remember in my previous life, I had an investor who had a really good year, and I said, do you trade a lot? They hadn't done a single thing, and they hadn't changed a single position, and they had a phenomenal year, so it's possible.

AI assessment note: “one thing which I think is interesting is inertia analysis”

Q Alongside the investment strategy investment team, how did you think about the culture of the organization at AKO?

A So when you build an organization from scratch, you don't really think about the culture because culture is just an extension of the way you think, right? It's very different to build a culture from scratch and then inherent the company or inherent the leadership of a company and trying to make a corporate culture. So I never really thought about corporate culture as a thing at AKO, but it was a combination of hard work, honesty, deep research, being honest with yourself in terms of decisions, being able to change your mind when facts changed. Transparency. Client first. These kind of things. I thought corporate culture was so interesting because it is really fascinating. You have two companies. They do on the surface exactly the same thing. One of them is successful. The other one is a failure. What is it? You see it, of course, to the extreme in banking. They supposedly do the same thing, but some people succeed and some people don't. And it's fast, right? It's happening fast, but it's happening in all industries. You see it in the elevator industry. You see it in the footwear industry. I mean, you name it. You've seen in the cosmetics industry, some companies are doing well, some companies are not. What is it? So corporate culture, really fascinating. So after a while at AKO, I did a master's degree in social psychology and studied corporate culture, and I just absolutely lo…

AI assessment note: “I never really thought about corporate culture as a thing at AKO, but it was”

Q When you start with your lens at AKO, which is obviously a far more concentrated portfolio, and then think about active risk in the context of the largest pool in the world, how do you decide what and how much to take that active risk?

A The risk taking in this fund is very delegated. So we have a lot of people running various mandates. One of the cool things working here is that you get responsibility early. You can end up after three years to run a billion dollars. So really great place to start because you get responsibility early and you are being trained by your colleagues. That's really important. Then we can, at the leader group level, also take some different types of risks. So we did, for instance, have a shorter duration than the market over the last few years. That's saved us quite a bit of money. So we can put on those type of Positions as well. We don't do it very often. I think they need to be pretty fat pitches. They need to be situations where you think you are 65%, 70% likely to be successful. So you don't see many of them.

AI assessment note: “The risk taking in this fund is very delegated. So we have a lot”

Q What's been your most memorable experience? Experience doing the podcast where you came off and said, wow, that's really why I wanted to do this.

A I get that a lot of times. It's a bit like when you meet a person and you have a meaningful conversation and you just get deep into something, that's just really fascinating. What an honor to be able to have a whole hour with some of these people, to spend an hour with Bill Gates or Jensen Huang or Sam Altman or James Gorman or you name it, that you get a whole hour with some of the most important people in the world who Shape the world into what it is. And some of them help you look into the future as well. It's really fascinating. I love it. And lifelong learning is another thing that they all mention. And this is part of my lifelong learning too. I read up on these podcasts during the weekends, probably the same way as you do. All of them feel a bit like an exam. You don't want to disappoint the people who listen in. You don't want to screw it up. You don't want to come across as a fool vis-a-vis the person you interview. So it's just a really cool thing. And I We had got hundreds of thousands of people who've been listening to these things, and hopefully some people can learn some as well.

AI assessment note: “I get that a lot of times. It's a bit like when you meet a person”

Q How have you staffed the organization to go out and pursue that strategy?

A So first of all, I haven't staffed it myself. I've been there for three years. Okay. So we were already full of fantastic people, really brilliant people. It's a very small organization. It's roughly a third of the size of what similar institutions would be given the asset size. We are 650 people, 650 people running 1.3 trillion. We don't have secretaries. We book our own tickets. On flights. You come and visit me in Oslo. You come into my office and think, gee, I thought you guys were running a lot of money. It's really laser focus on costs. And that's important because it does something with a mindset when we are a public institution and we have to behave thereafter. And that's important. We have a large proportion, which is run close to the index. There is an active element to all the strategies we run. So even the Indexed near funds would have different types of overlays and different types of long-term trades on. And then we have part of the pool, which we are running in a more active way. And it's important to do active asset management because it's also tied into active ownership because we have dialogue with the companies. We have 3000 company meetings a year. We have clear expectations to how the companies should behave. We vote at the AGMs and so on. So that active part is important.

AI assessment note: “We are 650 people, 650 people running 1.3 trillion. We don't have secretaries.”

Q How do you create incentive schemes on your team to try to elicit that behavior?

A We do have a rolling three-year way of looking at results. Is it the perfect way? No, it's probably not, and probably the incentive structure could be Even more long-term. It's funny, this thing with long-term, because when you are young, you're in a hurry. When you are 25, one year, wow, it's such a long time. Now, when you are at my age, one year is very short, right? The closer you get to death, the more long-term you become, and that's just really intriguing. I met a guy, a Spanish guy, the other day. He was like, 85, and he was just planting some pistachio trees. I don't know how long time it'd take for a Pistachia tree to start to bear fruit, but in quite a bit of time, right? He was really excited about his long-term prospects for his pistachia trees. 85. Hey, that's cool.

AI assessment note: “We do have a rolling three-year way of looking at results.”

Q How do you define those two different types of research?

A There are some similarities and some differences. One of the things when you come into a large organization like this, you cannot change the investment philosophy overnight. I can't say, hi guys, today we are going to start to invest in In quality investing. Everything you buy should have a certain growth rate, and it should have a certain return on investment. Otherwise, we don't want to buy it. Okay, so you tell that to somebody who's got a mandate, and then they underperform. Now, whose fault is that? That's your fault, right? It's not their fault. So you cannot do that. So people have to choose the way they invest themselves. And the philosophy in the fund has always been that there are many ways to skin the cat. You find the way that suits you, and that's how you go about it. Now, and then I'm trying to get people to become even more long-term in what they do. And even more focused. But in particular, the timeframe, I think is very important. And I really don't like frequent trading. I think you should trade as little as you can. It's very costly to trade because of friction costs. You move prices against you, and very often you add little value. And then the more decisions you take, the worse they tend to be. You make one decision per month, probably quite good. Make 10 a day, probably not very good.

AI assessment note: “you cannot change the investment philosophy overnight.”

Q What did you find in your research, both within AKO and studying, that gives you some understanding of what makes successful corporate cultures?

A It's a whole range of things. It comes from the top. When you take over a company, it takes a long time to change, at least five years, probably five to 10 years to make a difference. And it's called corporate culture for a reason, right? It's really ingrained in everything you do. And one definition of corporate culture is just how do we do things around here? And you can see it in so many different things. It's hugely fascinating. Analysts don't spend enough time on it because they think it's Too long-term. But it does change businesses sometimes within a five-year timeframe. And also, it is the thing that CEOs would love to talk about. It's what's on their mind. They don't like to sit there and talk about the next quarter. They couldn't give it to us. They're not interested in it. They think it's a waste of the time. They think you are a boring guy. They want to talk about corporate culture. They want to talk about what makes this organization tick. How can we pull away from the rest of the guys? That's what they want to focus in on. But do you think the normal analysts spend any time on it? Of course not.

AI assessment note: “Analysts don't spend enough time on it because they think it's Too long-term.”