An analysis of Norges Bank Investment Management’s equity performance

Abstract

The presented study examines the performance of Norges Bank Investment Management’s (NBIM) equity investments and whether they generate alpha. The sample construction is based on two sample periods, the first consisting of NBIM’s monthly equity returns from 2000-2017 and the second consisting of monthly equity returns from 2010-2017 which are compared to Kenneth R. French’s global market factor and NBIM’s reference index. In addition to looking at NBIM’s equity investments as a whole, this thesis distinguishes between the active and passive equity investments by creating an alternative proxy-model 1 and an alternative model 2.

The analysis of this study produces no evidence that NBIM’s management generates value. When comparing to the market, this study finds negative significant alpha values. This simply states that NBIM is underperforming compared to the market, and a higher value creation would be generated by truly passively diversify globally. When performing further analysis, this study does not find any evidence that NBIM outperforms the reference index.

In addition to our main sample periods we have evaluated the performance in the period 2013-2017 to compare our results with two opposing views of NBIM’s active equity performance. This paper estimates insignificant positive alpha values in this period. Dahlquist and Ødegaard (2018) estimated positive, but insignificant alpha values for their proxy of the active equity investments. Insignificant alpha values are not an evidence of outperformance or underperformance and are therefore considered to be zero. Considering the regression estimates of these studies are based on returns measured before cost, adjusting for the management fees will bring the alphas correspondingly negative. In the findings of Hoddevik and Priestley (2018), they estimated significant negative alpha value for the same sample period, arguing that NBIM’s equity investments do not generate excess returns.