Why Did a Hedge Fund
Manager Worth $700
Million Take a
$630,000-a-Year Job
Managing an Oil Fund?
Nicolai Tangen’s sovereign wealth soap opera.
• By Hazel Sheffield
August 02, 2020
At 3:00 in the afternoon on Thursday, November 14, a small
group of the world’s most powerful people prepared to
board two chartered airplanes in two separate European
capitals.
They were headed for Philadelphia for a weekend-long event
that had been several years in the making for its creator,
Nicolai Tangen, the Norwegian founder of one of Europe’s
most successful hedge funds, London-based AKO Capital.
“You are all exceptional,” Tangen wrote in the program for
the event. “You all want to extend your range and open your
minds. But, like me, you may not always have sufficient time
in your daily lives to do this, which is why I have had to
whisk you away to learn not only from some of the world’s
most inspiring speakers and professors, but also from each
other.”
He called it the “dream seminar.” The 150 attendees included
psychotherapist Esther Perel, former U.K. Conservative Party leader
William Hague, celebrity chef Jamie Oliver, and some of the most
powerful people in Norway, including the ambassador to the United
Nations, government ministers, government lawyers — and Yngve
Slyngstad, the chief executive of the Government Pension Fund Global,
otherwise known as “the oil fund.”
Days before, Slyngstad had announced his decision to resign as chief
executive of the oil fund — the largest sovereign wealth fund in the world
— after an impressive 12 years, during which the fund had topped $1
trillion in assets and sparked headlines for announcing its intention to
divest from shares in the very asset from which it derives its wealth: oil.
But even for a man of Slyngstad’s stature, a man who spends much of his
life speaking at finance events, the dream seminar was notable for its
opulence.
Passengers at London Stansted boarded the Crystal Skye, described as
“the world’s newest . . . and most spacious luxury jet.” This adapted
Boeing 777 contains a restaurant for 20 people, a chef, butlers, two wine
bars, and spacious bathrooms, plus seats that can be made into fully
reclining beds, furnished with 24-inch televisions. From Oslo,
participants traveled in a large Airbus passenger plane, done up entirely
as business class. The two flights alone cost Tangen $1.4 million.
Fredrik Sejersted, a government lawyer, described the journey to
Norwegian tabloid Verdens Gang as “a luxurious crossing and most
unusual for most of us.” Knut Brundtland, an art collector, says guests
were invited to attend with all expenses paid — something he notes was
“exceptionally generous.”
In Philadelphia, the Wharton School of Business at the University of
Pennsylvania — Tangen’s alma mater — collaborated on the program, in
which leading academics, artists, celebrity chefs, and Olympic athletes
gave talks on topics ranging from cancer to trust to art. The evenings
were crammed with drink receptions, networking events, and nightcaps
in the library of the Inn at the Penn hotel, with entertainment from
Gregory Porter and Sara Bareilles.
On the Saturday, during a day of activities titled “Ready for the Future?,”
Slyngstad appeared on a panel called “What type of economic system do
we need to prosper into the next decade and beyond?” with Wharton
School dean Geoff Garrett and Marc Rowan, co-founder of Apollo
Management. It was just half an hour long, before a sandwich lunch, and
paled in the excitement of that evening’s entertainment: Sting, who
played an hourlong concert that cost Tangen $1 million.
Participants were encouraged to keep quiet about the dream seminar.
Tangen later claimed this was to solicit “good discussions and proper
exchanges of opinions.” Perhaps because of this, the event went entirely
unnoticed by the press anywhere in the world.
That is, until after March 26, when Norges Bank Investment
Management — the authority charged by the Norwegian central bank
with the day-to-day running of the oil fund — held a press conference via
videolink from its offices in Oslo. The conference had been convened to
announce Slyngstad’s successor as head of the oil fund from a list of
eight men, released a month earlier, including one anonymous applicant
and two internal candidates. But the person who appeared on the screen
was not on the short list, not even as the unnamed man.
It was Nicolai Tangen.
Norway has a reputation for being one of the least corrupt countries in
the world. That’s partly thanks to the stabilizing influence of the oil fund,
which was set up in 1996 when the Norwegian government realized that
the liquid gold that had turbocharged the country’s economic
development since its discovery in 1969 would eventually run out.
Norwegians are oddly affectionate toward their oil fund. It acts as a
financial reserve, smoothing out revenue and hedging against
fluctuations in the price of oil, but also as a national savings account.
The fund provides 20 percent of the annual government budget, though
a fiscal rule ensures Norway does not spend more than the real return of
the fund, which is estimated to be about 3 percent per year. Today less
than half of the value of the fund comes directly from oil and gas
production; most is from returns on investments in equities, fixed-
income, and real estate in international, rather than domestic, markets
— hence the name: the Government Pension Fund Global.
At $1.1 trillion in assets, the oil fund is likely the largest sovereign wealth
fund in the world, a quarter of a trillion dollars bigger than its nearest
neighbor, the China Investment Corp. It wields considerable influence in
global stock markets, owning 1.5 percent of all shares in the world’s
9,000 listed companies, alongside hundreds of buildings in global cities
that provide rental income. It also has a steady flow of income from
lending to countries and companies. In recent years, under the
leadership of Slyngstad, the oil fund has shown increasing willingness to
hold companies to account over social and environmental issues: It no
longer invests in producers of coal or coal-based energy, nuclear
weapons manufacturers, producers of tobacco products, and companies
that have been shown to violate human rights.
Since 2016 the oil fund has adopted many measures in the fight against
tax havens and financial secrecy. As recently as March, NBIM’s chief
corporate governance officer and the Norwegian central bank’s head of
sustainability for corporate governance declared publicly that
maximizing long-term value “does not require aggressive tax behavior”
and that as an investor, NBIM expects multinational enterprises to
exhibit tax behavior they consider “appropriate, prudent, and
transparent.”
So it was with some surprise that Norwegians turned to look at the
investing record of Nicolai Tangen, the shock successor to Slyngstad as
chief executive of the oil fund.
Tangen has personal investments worth £67 million ($85 million) in
funds and companies based in tax havens in 2020, according to VG,
including 284,913,910 Norwegian kroner ($31 million) in “The Russian
Property Fund” and $14.1 million in the “Ennismore European Smaller
Corporation Companies Hedge Fund,” both registered in the Cayman
Islands. He also has an ongoing case between his company, AKO Capital,
and the British tax authorities relating to incentive schemes.
Her Majesty’s Revenue & Customs, the authority that collects taxes in
the U.K., declined to comment on or confirm the case, but Tangen
himself told VG in April: “It is a so-called ‘deferred payment scheme’
that most in the industry set up after the financial crisis to create even
better harmony between investors’ and managers’ interests.”
How do we know all of this? Because in the month that followed
Tangen’s appointment, the Norwegian press went bananas.
They pored over Tangen’s personal investments, scrutinized the hiring
process and why he didn’t appear on the short list of applicants before
his appointment — experts even speculated that the omission was
criminal — and excavated as many details as possible about the
extravagant dream seminar.
Official after public official came forward with apologies for having
attended the seminar without making the proper declarations to the
public. “I should have been more open,” said Torbjørn Røe Isaksen,
former minister of trade and industry in the government, about his
decision to go. The ministry scrambled to pay back the cost of his hotel
bill and meals, and there was hand-wringing about whether he should
pay for the concert with Sting. The U.N. decided to cover the stay at the
Penn and meals for Mona Juul, the Norwegian ambassador, after it was
contacted by the press.
Slyngstad was the most heavily scrutinized. Norges Bank was forced to
investigate his travel, revealing he had caught the train from New York
to Philadelphia on Norges’s dime but had slept and eaten at the
conference at Tangen’s expense, as well as taking the plane chartered by
Tangen home from Philadelphia to Oslo out of “convenience.” Slyngstad
also revealed to VG that he had attended the seminar in his professional
capacity as head of the oil fund, and that he spoke about his resignation
at the event, though not directly with Tangen.
He did not, he said, personally encourage Tangen to apply for the job.
But emails requested by Dagens Næringsliv, a Norwegian newspaper,
on April 3 reveal that the two men had been in contact from August 2016
— and that that contact dwindled in 2020, when Slyngstad stopped
responding to Tangen’s emails, messaging Tangen again only to
congratulate him when his appointment was announced.
“I am really, really sorry,” Slyngstad wrote in a message to employees,
admitting he had “really screwed up.” He added: “Since this will be my
last business trip as head of the oil fund, I am embarrassed to have made
such a mistake this time.”
The stories sparked a public debate in Norway about the place of gifts in
public life. “If you want to apply for a construction permit in Norway,
you would not bring a basket of fruit to the public official managing your
case,” says Tina Søreide, research leader for the corruption and criminal
law unit and professor of law and economics at the Norwegian School of
Economics. “Those who work in the oil fund are not supposed to accept
even a silk tie. But this seminar was so far beyond that, there was no
recognition of the difference between the public and the private.
It goes beyond Tangen to reveal a lack of consciousness about gifts.”
In the aftermath of these revelations, the 15 members of the Norges
Bank Supervisory Council, which oversees compliance at the central
bank, has repeatedly written to the central bank for more details about
Tangen’s appointment. On April 23 the council sent 26 questions
detailing problematic aspects of the appointment and demanding a full
written account. A week later, Norges Bank responded with an 83-page
document.
It contains details of Tangen’s personal investments and those of AKO
Capital, which manages $20 billion across long-only and long-short
equity funds; the AKO Trust, established in 2002; and the AKO
Foundation, a charitable foundation. (Tangen declined to be interviewed
for this article.) A spokesman for Norges Bank tells Institutional
Investor rather optimistically that Tangen had “decided to stay under
the radar media-wise” until he starts his new job in September. But in
April, VG asked him what he thought about having invested heavily in
tax havens like the Cayman Islands and Jersey, given he was about to
take the top job at a fund that has been striving for tax transparency and
cracking down on the use of tax havens.
His answer? Everyone’s doing it. “This is a Cayman-
registered fund in line with approximately 60 percent of this
type of fund in Europe,” he said.
Then, in a development that left many Norwegians reeling, Norges Bank
backed him up. In a letter, Øystein Olsen, governor of Norges Bank,
wrote that all of Tangen’s tax arrangements were legitimate — because
Jersey and the Cayman Islands, though they are frequently referred to as
tax havens, are both members of the OECD Global Forum on
Transparency and Exchange for tax purposes. That forum scores
countries on one measure, and by this measure — willingness to
exchange information — the Cayman Islands scores similarly to
Denmark and Germany.
The tax havens, according to Olsen, aren’t actually all that bad, if you
evaluate them by the single fact that they have agreed to share some
data. But under the 20 criteria of the Financial Secrecy Index — which
ranks a country based on how well its legal and financial system allows
wealthy individuals and criminals to hide and launder money — the
Cayman Islands is the biggest enabler of financial secrecy in the world in
2020. “So they are saluting the tax havens,” says Sigrid Jacobsen,
director of Tax Justice Network Norway. “What we consider to be the
worst of the worst has been saluted by the head bureaucrats of Norway.
They are spinning words.”
In the months since, Tangen has worked with Norges Bank to separate
himself from his personal financial interests and those of AKO Capital.
He will move to Norway and pay taxes in Norway, where his salary, as
chief executive of the fund, will be just $630,000. For the duration of his
time at the oil fund, all dividends arising from his stake in AKO, already
diminished from 78 to 43 percent, will be donated to the AKO
Foundation. He has closed the AKO Trust. His wealth has been placed in
a blind trust with Norwegian fund manager Gabler investments. Tangen
has also stepped down from all AKO boards. In accepting the changes,
he said, “Trust is something you don’t take, you get.”
Norges Bank wants to draw a line under the affair. On May 28 it
announced that Tangen’s employment contract had been signed. “With
Nicolai Tangen we will have a highly skilled leader of the Government
Pension Fund Global,” Olsen said, announcing, for the second time, the
appointment. “Tangen is a man with good leadership skills and unique
experience from international capital markets.” Tangen is due to start
the job on September 1.
But for many Norwegians the debate is not yet over.
“The oil fund belongs to the Norwegian people,” wrote Anja Bakken
Riise, leader of Future in Our Hands, Norway’s largest environmental
organization, in a June op-ed in VG. The democratic roots and the
ethical profile of the fund are at stake, she claimed, concluding, “The
Parliament should take back control and stop Norges Bank’s
employment of Tangen.”
Jacobsen goes one step further. She says Olsen stood behind Tangen and
pushed for him to sign his employment contract even though there were
still many questions left to answer. “When the appointment was
finalized and signed, Olsen said he had the whole board of the central
bank behind him and that the committee can’t affect this hiring
process,” she notes.
Then Jacobsen made an even more astonishing point. If the committee
decides unanimously that there were irregularities in the hiring process,
or that conflicts of interest remain, it’s not just Tangen’s position that
would be compromised, she says. The whole board of the central bank
could have to stand down.
On August 10, when many Norwegians are still on holiday — and they
take their holidays seriously in Norway — some will return to the
Storting, the Norwegian Parliament, to participate in another
livestream: a hearing scrutinizing the circumstances around Tangen’s
appointment.
Many Norwegians see three irregularities. There are the numerous
personal global financial interests, including Tangen’s attachment to tax
havens. There’s the way the media chaos since March has been handled
by Norges Bank. But the looming question that occupies many minds is:
How did Tangen, not even short-listed by the bank in March, come to
take the job?
He was not a well-known public figure in Norway before 2020. Tangen
was born in Kristiansand, in the southernmost part of Norway, and
trained in interrogation and translation in the Norwegian Intelligence
Service. He studied at the Norwegian School of Economics and then the
Wharton School as an undergraduate in the class of 1992.
He’s a scholar, with two master’s degrees — one in art history from the
Courtauld Institute of Art in London and another in social psychology
from the London School of Economics. But Tangen also has a formidable
reputation in his chosen career of finance. After stints at Cazenove & Co.
and Egerton Capital, he started his own hedge fund, AKO Capital, in
2005 in London. He has made London his home for three decades,
overseeing AKO Capital as it has grown to $17 billion under
management and 70 employees. In recent years, Tangen has been a
regular face on The Sunday Times’ Rich List, a popular ranking of the
U.K.’s rich and famous, where he was listed as one of the U.K.’s most
successful hedge fund managers in 2018 and ranked 251st-richest in the
U.K. in 2020, with an estimated net worth of £550 million.
As his net worth has grown, Tangen has followed the lead of Richard
Branson and Bill Gates, men who make heavy use of favorable tax
arrangements and then win headlines for promising to give their wealth
away. Tangen took the Giving Pledge — the Gates initiative in which the
wealthy promise to give half of what they have to philanthropic causes
during their lifetimes or in their wills — with his wife, Katja, in 2019. In
2013 he established the AKO Foundation, which has a focus on
education and the arts. One of its biggest donations to date is a $25
million gift to the University of Pennsylvania, where he has been
honored with a “transformative new campus building to be named
Tangen Hall,” plus an international scholarship fund.
Norwegian experts have described Tangen’s giving as “personal brand
building.” Peggy Brønn, professor emeritus at the Institute for
Communication and Culture at Norwegian business school BI, tells VG,
“It looks like he puts himself in a position close to those who have
influence and that he himself will also have influence. There is nothing
wrong with that, but it is important that it appears genuine.”
As with the dream seminar, Tangen’s actions have sometimes misfired.
Tangen seemed unprepared for the backlash that surrounded his
appointment, telling the Financial Times in May that the previous few
weeks had been like being in the “middle of a tumble dryer.”
In Norway he is best known in his birthplace, and more widely for his
expansive collection of Nordic art — sometimes touted as the largest in
the world, with more than 3,000 works. Through the AKO Foundation,
Tangen is converting a grain silo in Kristiansand into a museum to
display his art, with an opening date of 2021.
The project has caused upset over costs of more than NKr600 million,
split among local taxpayers, the state, and Tangen. “I thought I was
doing something nice,” he tells Norwegian Broadcasting (NRK). “I never
thought it would cause so much uproar.”
These missteps ring alarm bells among onlookers. Some fear that
Norway — a small country with a population of just 5 million, where the
elite naturally move in very small circles — will face further reputational
damage beyond the bungled processes that led to Tangen’s hire.
“Norway has a self-image of being a meritocratic society, but that’s not
entirely true,” says Sony Kapoor, managing director of international
think tank Re-Define. “It suffers from having small networks of people
who grew up together, went to the same university, and it is often this
network that runs the country.” Kapoor says that professionals tend to
rotate around the Finance Ministry, the central bank, and the statistics
bureau — which he describes as the “golden triangle.” In 2018, Norway
fell from third to seventh place in a global ranking of corruption
perception, suggesting the Norwegian people’s confidence in the
government had fallen.
At the August parliamentary committee hearing, ministers will take
another look at the processes that allowed Tangen to get the job. They
will note that his name appeared on a long list of 41 potential
candidates assembled by recruiter Russell Reynolds Associates at the
start of 2020, but then disappeared from the short list in the months
before he was announced as the winning candidate. Although the
parliamentary hearing cannot legally reverse Tangen’s appointment, it
could make his position untenable if it emerges that rules were broken —
and could jeopardize the legitimacy of Øystein Olsen, the governor of
Norges Bank and chair of the bank’s board. Ministers will have to decide
if Norges can move past the scandal, even as ordinary Norwegians
continue to speak out in disgust.
Bakken Riise says that it “just doesn’t feel right” that Tangen should
become head of the oil fund at a moment when it is stepping up pressure
on companies and governments to become more responsible for social
issues and the environment. “Today the fund has had a role as this
sustainability lighthouse,” she says. The oil fund uses “expectation
documents” setting out criteria that all the companies in which it invests
must meet on tax, transparency, corruption, climate change, and human
rights. “It is always pushing what you can expect from an institutional
investor.
When you have this man at the top who doesn’t have credibility when it
comes to some of these issues, can we still expect the companies to take
such care?”
But a bigger risk — aside from reputation — is that the scandal clips
Tangen’s wings at a moment of considerable market volatility, when
Norges might otherwise have leaned on its new head’s expertise.
Although the oil fund rode out the 2008 financial crisis relatively
unscathed, coronavirus and a sharp fall in oil prices created the fund’s
worst quarter on record, with a 16 percent drop in the three months to
April. At the same time, the Norwegian government has been battling
rising unemployment, which had quadrupled by the end of March. The
government may have to draw down record amounts from the fund at
the same time that its revenues slide.
Tangen is a celebrated stock picker. But the oil fund is de facto an index
tracker fund, which is forbidden from investing outside of listed stocks
and bonds, except in unlisted property. NBIM, whose investment
management arm Tangen will soon lead, must keep to benchmarks set
by the Finance Ministry, with a tracking error of just 1.25 percent. “The
role of chief executive is not very influential on the way the fund is
managed,” says Kapoor. He points out that though NBIM has a staff of
more than 500 well-qualified and experienced managers, it is fewer than
20 bureaucrats in the Finance Ministry, “with little financial expertise
and no experience,” who really call the shots. “The job is high-profile,
yes, but the difference between a good job running NBIM and a bad job
running NBIM is not really noticeable in terms of performance, because
it only has a [small] tracking error from the benchmark set by the
Finance Ministry. Room for maneuver is very limited.”
This was a problem encountered by Slyngstad during his 12 years as
head of the fund. He called repeatedly for the fund to enter into new
asset classes such as private equity — calls that were rebuffed by the
Norwegian government and the central bank. In 2018, a year before his
departure, Slyngstad presided over a momentous inquiry into whether
the oil fund should continue to be housed in the central bank, itself a
highly unusual arrangement unlike those of other large sovereign wealth
funds. In China and Saudi Arabia, for example, there is a division
between central bank reserve funds and sovereign wealth funds. Inside
Norway’s central bank, the oil fund plays a major role in public markets.
Outside, an expert committee proposed, it could have a much greater
role in infrastructure and property, plus other less liquid and private
assets — assets that Norges Bank might not have the competence to
effectively oversee from the inside. “This decision is the most important
for the last 20 years for the fund,” Slyngstad said in October 2018,
admitting that the issue, more than any other, was keeping him up at
night.
Now Slyngstad is gone and the Norwegian government has resolved to
keep the fund where it is. The scandal over his appointment has shielded
Tangen from questions about his intentions for the oil fund, including
whether he will push for more active management — a strategy that
would be natural given his experience. Tangen has limited himself to
describing the position at the oil fund as his “dream job” and “a higher
purpose than just working in a normal bank. You should be proud of
working for your country,” he says.
But his countrymen are already unsure what he can do for
them. He will enter the role a “significantly weakened figure,”
Kapoor notes, with diminished power to take on bureaucracy
and a weakened ability to bargain for the oil fund to have
more discretionary powers.
“It’s bad for him personally because far too much time will be
spent twiddling his thumbs,” Kapoor says. “But it’s even worse
for the fund.”