Mr. Wigglesworth has a modest proposal for the world's largest fund (I think?).
... maybe take outside money? Maybe open up business for individuals?
It's a crazy idea that won't ever happen, but also pretty revealing in terms of using financial markets for savings (#793537). By its sheer size, the Norwegian wealth fund has achieved an enormously beneficial diversification plus economies of scale that makes its management cost a pittance.
Henriksen, quoted in the piece:
"NBIM’s systematic strategy of efficient, broad diversification and economies of scale—so-called “enhanced indexing”—has, historically, delivered positive risk-adjusted returns relative to index even after costs."
Return wise not that impressive ("NBIM has since 1998 generated annual average net returns of 6.34 per cent") but Wigglesworth explains that for the first couple of years there was a much larger (government) bond holding portion that dragged down performance.
(I have a graph of U.S. university endowment returns somewhere—probably in a previous post—but can't find it right now... Stackers, go search!)
NBIM has also outperformed the "average US university endowment over the past 3, 10 and 25 years despite their often much racier asset mix."
The point is: they basically run a global index fund with minuscule tracking errors. And it costs them 4 basis points to do so... that's several times cheaper than any/most of the cheapest ETFs or other such products available to consumers. So... just opened it up, take outside money, and calmly manage everyone's savings for a fraction of the cost that the financial industry charges for their similar-ish products?
Not the world's craziest idea, LOL
By owning something like 1% of all listed companies worldwide, the Norwegians gain some amount of soft power over boards and companies (e.g., like BlackRock), able to push certain corporate agendas now and again.
To some Norwegians this might be part of the attraction — leveraging already-existing investment infrastructure to subtly increase the country’s soft power projection — but as a rule of thumb it’s probably healthier for the financial system to have a diversity of distinct pools of capital with differing investment and governance styles, rather than a narrowing club of titanic ones.
A very long Alphaville piece on a proposal that isn't even a proposal and that never, ever, ever will become reality. Still, it's pretty fun to observe and think about... if economies of scale makes a product cheaper: why aren't we all using the cheaper product?!
/J
Alphaville is usually open (with a registration at least), but in case not here's the archive: https://archive.md/Vuh3d