FT Alphaville: Last year, Norway's $1.5 trillion sovereign wealth fund revealed it lost 980 million krona, or about $92 million, due to errors in how it calculated its mandated benchmarks. Here's what Norges Bank Investment Management said at the time: “In February of this year, we discovered a calculation error in the composition of the index we measure. This error led to a slight overweight in U.S. bonds compared to global bonds. “When we found out, we immediately started making corrections.” “However, because the fund is so large, the return was 0.7 basis points. Therefore, the previously reported positive relative return of NOK 118 billion was reduced to 117 billion. It has been revised downward to the Norwegian krone.
This is a great example of how even small operational errors can have nominally huge consequences when managing one of the world's largest pools of capital. In some cases, mistakes can even lead to windfall profits. In 2021, it was revealed that NBIM had accidentally accumulated huge positions in rising stocks and made 582 million kronor. However, the index's decline in 2023 was by far the largest ever recorded by the fund, and was nearly double the cumulative losses suffered by the fund from operational mishaps from 2010 to 2020. . Alphaville was intrigued. What exactly went wrong? Now, in a recently released anthropological report commissioned to examine its own culture, NBIM inadvertently reveals just how small its mistakes were. It seems that I have made it.
Here, an NBIM employee known as “Simon” details the debacle with the report's author, Torn Danielsen. Alphaville's highlights include: “Last year (spring 2022), we held an offsite, and one of the workshops was on “Mistakes and how to deal with them.” We wrote sticky notes and categorized them into different categories, from harmless to things we shouldn't do. One sticky note that I vividly remember read: “Treasury Benchmark Miscalculation.” I put it in the “unacceptable” category.
When I wrote that note, I honestly didn't even have the courage to think about the consequences. And less than a year later, I did just that. my worst nightmare. It was a manual error. It's my mistake. I used the wrong date of December 1st instead of his November 1st as specified in the obligation. The mistake was first revealed by the Treasury several months later. They reported that the numbers didn't add up. After calculating all the numbers again, the source of the mistake was identified.I informed Patrick immediately. [Global Head] and doug [Chief]. I openly state that this is my mistake and my mistake alone. I felt miserable and was ready to accept whatever the outcome was. ”
