Norway’s $1.8tn sovereign wealth fund has taken its first steps into long-short equity hedge fund investing, with plans to allocate billions of dollars to the strategy in a bid to enhance returns, according to a report by the Financial Times.
Norges Bank Investment Management (NBIM), which oversees the world’s largest sovereign wealth fund, confirmed that it made its first long-short hedge fund investment in January and is currently evaluating additional mandates in the US and Europe. According to Erik Hilde, NBIM’s global head of external strategies, the fund is considering mandates of approximately $250m per manager.
“We are currently evaluating long-short strategies in Europe and the US,” Hilde said, noting that the hedge fund landscape has evolved, with a growing number of smaller, privately owned managers offering opportunities that align with NBIM’s investment strategy.
NBIM, which currently works with 110 external managers running long-only strategies, hopes these new long-short mandates will outperform its external managers’ historical 1.8% annualised excess return above benchmark after fees. The fund already runs long-short strategies internally and aims to complement its existing exposure with external expertise.
NBIM’s external long-short equity investments will be structured as separately managed accounts, where hedge fund managers will borrow stocks from NBIM’s extensive index portfolio to take short positions. The fund emphasised that it will not be net short on any company overall.
The strategy will target stocks with high valuations, signs of fraud, or unsustainable business models, Hilde added. The fund is also looking for sector-specific expertise, particularly in technology and healthcare.
While the exact number of mandates is yet to be determined, NBIM will prioritise managers with strong performance records and fees will be largely tied to returns. The fund is specifically interested in smaller, privately managed hedge funds, citing their better alignment of interests, superior compensation structures, and ability to attract and retain top talent.
NBIM’s decision to expand into active long-short equity aligns with its broader shift towards alpha-generating strategies. CEO Nicolai Tangen, who took over in September 2020 after founding the hedge fund AKO Capital, has steered NBIM toward more active portfolio management amid macroeconomic uncertainty and market volatility.
