Norges Bank IM’s selective approach to China and EMs

Norway’s sovereign fund allocates 3.1% of its $1 trillion to China, up from 2% in 2016. Head of external strategies Erik Hilde explains how it invests there and in other emerging markets.
Norges Bank IM’s selective approach to China and EMs

Norway’s $1 trillion sovereign wealth fund holds a huge amount of Asian assets: it has $145 billion allocated to Asia Pacific equities alone, and the region accounted for around half of its 260-odd emerging market equity mandates as of end-2018. Some 3%, or $30 billion, of the portfolio is in Chinese stocks, up from 1.7% at end-2016.

Getting to that stage has taken a great deal of time and effort, as Norges Bank Investment Management is extremely selective about how it invests in emerging markets, both through outside managers and its own enhanced index team.

Erik Hilde, the fund’s head of external strategies, spoke in detail to AsianInvestor last month about its approach.

One clear indicator of NBIM’s level of commitment to China and the region is that Hilde relocated to Shanghai in 2006 for two years to be closer to the mainland market. That was in preparation for the fund opening its office in the city in 2007. 

Erik Hilde, NBIM

“Needless to say, our investment in China has grown substantially since then,” Hilde said – it had risen to 3% of total AUM by December last year. This has come as index provider MSCI said in 2017 that it would start including an A-share weighting in its widely tracked emerging market benchmarks.

NBIM started active investment into Chinese stocks in 2005 by hiring two managers, one for H-shares and one for A-shares, Hilde noted. Today it has six managers across Beijing and Shanghai and three in Hong Kong; five of them invest in A-shares and four in H-shares.

The fund also used to invest directly into renminbi bonds between 2015 and 2019, and may do so again, Hilde said.

Asked whether NBIM's China exposure would grow further or whether it had any concerns over the rising tensions between Beijing and other governments, Hilde declined to comment, saying the fund tended to avoid forward-looking comment.


Still, NBIM's expanding China allocation so far reflects a steady rise in emerging market exposure over the past 12 years or so. The strategy has paid off, according to an external manager analysis that the fund published in April.

Between 1998 and 2018, active equity managers in emerging markets garnered it an annual excess return of 4.2% before fees and 3.5% after fees. That compares to an overall annual excess return from active equity managers of 2.1% before fees and 1.8% after.

This has come off the back of a highly selective approach. In China there were 845 companies in the equity benchmark at the end of 2018, but NBIM was only invested in 130 of them. 

“Our external managers play a crucial role in avoiding a great number of the companies in the benchmark and invest in a careful selection of companies,” the fund said in the external manager report.

After all, investing more in emerging markets means rising corporate governance risks, Hilde noted. That is one reason why NBIM employs asset managers that are truly local to the markets they invest in: they can help avoid companies that pose higher risks of corruption and corporate governance issues (see box below).


As Norges Bank Investment Management has built its emerging markets exposure, with Asia a key focus region, it recognises that with greater potential returns comes the potential for more governance risks.

Erik Hilde, head of external strategies, outlined the key ESG questions he puts to asset managers before handing out mandates:

• Describe the main environmental, social and governance (ESG) risks and challenges in your investment universe

• Outline your investment team’s approach to identifying and considering these risks in the investment processes

• Describe the direct or indirect impact of your approach to ESG risks on valuations or investment decisions

• Tell us how you take ESG factors into account in portfolio construction

• Provide examples of where you have discussed ESG issues with an investee company’s management to make improvements


Despite NBIM’s large allocation to Asia, Hilde’s external strategies team does not have any staff based in the region; there are five individuals in Oslo and three in New York.

The fund does, however, has three offices in Asia, which boast sizable investment desks. Shanghai opened in 2007 and now has 10 staff, nine of which are investment-focused. Singapore was set up in 2010 and now has 43 employees, of which 20 are investment professionals. Those two branches focus on equity and fixed income, while NBIM has a real estate office in Tokyo, set up in 2015.

Has Hilde thought about putting any of his own team outside Oslo or New York to cut down on the travel, or indeed ease the impact of travel restrictions?

“We have no immediate plans to put manager selection staff elsewhere,” he said. “But we have previously had one or two members of the team based in other offices for a short time, and that may very well be the case later.”

This article is an extract from an interview with Erik Hilde that appears in the latest (Summer 2020) issue of AsianInvestor magazine. This the second of a two-part online series; the first article was published last week.

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