The Worlds Largest Shareholder: The Story of NBIM
By: Thomas Groenvold
Tags: Sovereign Wealth Funds, Norway, Wealth, Stocks, Investing

How a country with 5.3 million citizens ended up owning 1.5% of the global stock market.

Source: Shutterstock.com

In the early 1960s, the Norwegian government claims sovereignty over the Norwegian continental shelf. This set the starting point for what would result in more than 60 years of oil exploration in the Northern Sea.

The Norwegian government looked to oil nations such as the United States, but whereas the US let private companies operate freely, Norway wanted the government to stay firmly in charge of any exploration on the continental shelf.

This resulted in strict guidelines, licensing, and the shelf split into blocks. The first request for permits arrived in 1962 from Phillips Petroleum Co. While neighboring countries such as Holland and Denmark already had activity on their continental shelf, Norway has no structure for the petroleum industry at the time.

In May 1963, Norway announced that the seabed and any resources found underneath the Norwegian continental shelf rightfully belonged to the Norwegian kingdom.

The announcement resulted in Great Britain and Denmark making similar announcements for their coastal areas. The three reached an agreement and signed a deal for ownership of the continental shelf based on the midline principle.

Royal Palace, Oslo, Norway. Source: Shutterstock.com

On April 9th, 1965, a royal resolution created the first licensing regulations, and four days after the first round of licensing was announced. The announcement resulted in 22 production licenses involving 78 search blocks. International companies such as Esso (ExxonMobil) and Phillips were awarded licenses.

Opening the book

Esso drilled the first well in 1966 without any substantial finding. There were several minor findings over the next few years, but nothing worth pursuing further.

Wells continues to disappoint, and by the end of the 1960s, several companies were ready to discontinue their exploration in Norwegian waters. While many had already started putting their rigs in drydocks, Phillips Petroleum had one well left to drill on their Ekofist block.

December 23rd, 1969, changed the future for the little Kingdom on Europe's northern tip. Phillips Petroleum struck oil on Ekofist. The oilwell turned out to be one of the biggest found at sea through history still today and the real turning point in Norwegian industry.

Several major oil wells were discovered around the original block in the years following, and investments in the field skyrocketed.

Still, the Norwegian government saw most profits from the massive oil reserves disappearing into foreign investors' hands.

This resulted in new guidelines and the formation of Statoil (Current day Equinor) in 1972. Another smart move by the government was the requirement that all oil extracted from the Norwegian continental shelf had to be brought ashore in Norway.

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As a result of this new regulation Mongstad was established in 1975. The massive oil refinery was then expanded further toward the end of the 1980s. Today Mongstad is the second-largest oil port after Rotterdam.

Statoil's function was for the government to have an active part in any excavation on the Norwegian seabed, and for several years Statoil received 50% of all new licenses announced.

Statoil's income came into government coffers on top of royalties and taxes levied on all companies operating in Norway.

The original royalty for licenses in Norway arranged with Phillips Petroleum back in 1965 was 10% plus tax. This all changed when parliament approved the new Petroleumslaw in 1975.

Implementing new scaleable production fees (8–16%), basic corporate taxes (50,8%), and oil-related special tax (25%), resulting in a “government-take” of 80%.

New regulations in place meant the flow of cash into government coffers grew rapidly as production expanded.

Our story begins

The idea of establishing a fund for the profits from oil was first presented by the Tempo Committee in 1983. The proposal's thought was to establish a financial vehicle to shuffle the increasing flow of oil profits into long-term management and preservation for future generations.

In 1990 parliament approves a law to establish the Government Petroleum Fund or “Oljefondet”. The fund’s purpose is to support the government’s long-term management of petroleum revenue, investing it outside Norway's borders.

The first deposit into the fund was transferred from the Ministry of Finance into the fund in 1996. An amount of $314.464.841 put down the foundation of what would become the largest sovereign fund in the world.

Several additional deposits quickly followed the deposit of $314.464.841, and in 1996 alone, the Ministry of Finance transferred $7.519.222.782 into the fund.

By the end of 1997, the transfers have grown into $18.000.221.276, but at this point, the fund is fully invested in foreign government bonds providing poor returns.

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NBIM saw the day of light on January 1st, 1998. NBIM or Norges Bank Investment Management was a new department under the central bank of Norway to manage the rapidly growing fund.

With the establishment of NBIM, parliament also adjusted the fund's risk profile, allowing for 40% of the fund to be invested in equity. The only preventive rule was that the fund was to online invest in foreign equities, not creating artificial market movement in the small Norwegian stock market.

By the end of the year 2000, the fund had grown to $61.341.235.716. The Ministry of Finance continued to provide NBIM with money faster than they could invest it, and in the following years, Emerging markets, Corporate bonds, and real estate were added.

Navigating a global meltdown

Little did the Ministry of Finance know about what to expect when they in 2007 increased the fund's equity share from 40 to 60% weighting. By the time Lehman Brothers collapsed and the world spiraled into a financial crisis not seen since the 1980s, the fund had grown into a behemoth with a $361.178.761.037 valuation.

The fund had a hard cap on 60% equity, meaning that 60% of the funds’ assets should be invested in stocks at all times. But as financial markets crashed and the fund saw the stock portfolio decline by 23.3%, NBIM went against the rest.

While most investors sold off anything they could to try salvage what was left of declining investments, NBIM bought all the stocks they could find. So while financial markets were falling into all-time lows, NBIM bought shares for a total of $174.137.931. By the end of 2009, NBIM finally met the threshold of 60% equity, and the fund delivered an astonishing 25.6% return as financial markets started to recover. Boosting the value of the fund to a total of $419.054.411.762.

The fund continues to grow at a steady pace and in 2013 delivered a second-best return through the funds’ history with an annual gain of $193.548.387.

In 2017 the fund crossed a threshold when it reached a valuation of $1 trillion for the first time. 2019 provided another milestone for the fund as it reached a valuation of 10.000 billion NOK or $1.162.790.697.674. More than half of this valuation is the return on investments as inflow from the Ministry of Finance account for $383.720.930.232.

The fund size accounts for almost 1.5% of all publicly traded stocks in the world and gives every Norwegian citizen a theoretical fortune of $219.394 held in the fund.

A Peak into the vault of Norway

Source: Shutterstock.com

With ownership of 1.5% of all global equity, we wanted to take a closer look at some of the companies held in this massive portfolio.

The latest annual report published from the fund shows that the Kingdom of Norway holds ownership in more than 9000 companies worldwide. The largest positions of the fund include:

1.02% ownership of Apple Inc (valued: $13.310.905.191)

0.99% ownership of Microsoft Corp (valued: $11.908.051.898)

0.96% ownership of Alphabet Inc (valued: $8.857.185.911)

2.53% ownership of Nestle SA (valued: $8.157.880.808)

0.85% ownership of Amazon Inc (valued: $7.810.259.784)

The list of well-known companies continues and includes Berkshire Hathaway, JP Morgan Chase & Co, Bank of America Corp, Facebook, and Procter & Gamble.

No matter what company you look into, there is a high risk you’ll find NBIM among the shareholders. The reach of Norway has grown into investment totaling 74 countries or most developed economies around the world.

The fund has proven to be one of the most successful government investments in history and landed the Norwegian sovereign wealth fund in front of major economies such as China. Not bad by a country ranking 119th by population.