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The Oil Fund draws Dot-Com parallel with ESG

For the former hedge-fund boss now running the world’s largest sovereign investment vehicle, there are some obvious parallels between today’s market for sustainable assets, and tech stocks just before the dot-com bubble burst.

Photo: Tony Colli/PR

Nicolai Tangen, who’s been chief executive of Norway’s USD 1.3trn wealth fund since September, says worrying about bubbles comes with the job.

But he also suggests that today’s frothy prices for climate friendly assets might reflect their longer-term potential, as was ultimately the case with tech stocks.

"What is interesting is, if you compare the situation now with, for example, the situation before the year 2000, then the stock market was right that technology companies were going to do well in the future," Tangen said in an interview on Thursday.

"But the valuation went a little high, so it came down again, but the technological development continued."

The analogy suggests that stocks and bonds touting environmental, social and governance credentials might be in for a correction in the short term, but have significant potential in the longer term.

"We may see something of the same sort now, that what is happening in the green shift is extremely important and real," Tangen said. "But to what extent stock prices reflect it correctly is another question."

The hyperbole around ESG assets is hard to miss.

Global issuance of debt that meets sustainability criteria will reach a record of at least USD 1 trn this year, according to SEB, the Swedish bank behind the world’s first ever green bond more than a decade ago.

Last year, governments, corporations and other groups raised a record USD 490bn selling green, social and sustainability bonds.

A further USD 347bn poured into ESG-focused investment funds, marking an all-time high, and more than 700 new funds were launched globally to capture the deluge of inflows, according to researchers at Chicago-based Morningstar Inc.

Asked specifically about the risk of an ESG bubble, Tangen said it’s his instinct to be "worried about everything between heaven and Earth. Overpricing in parts of the market is one thing I am worried about."

As of the end of January, the fund hadn’t managed to invest a single cent in the renewable energy infrastructure space, for which it’s had a mandate since 2019, to avoid buying at inflated prices.

The goal is for the portfolio to eventually reach about 1 percent of the total USD 1.3trn fund. Tangen has already said that might prove hard, with demand for renewable infrastructure assets driving up prices.

Part of the challenge is operating in an environment in which pretty much all asset classes have been inflated by unprecedented monetary support.

"We must be prepared for corrections in the stock market," the wealth fund’s deputy CEO, Trond Grande, told reporters on Thursday.

"We have no view on when the correction might come, where it might come, and how powerful it might be."

Meanwhile, technology stocks were gripped by a selloff on Thursday, with the MSCI World Information Technology Index slipping 3 percent. Amazon.com Inc. is down more than 6 percent this year, while Apple Inc. has lost about 9 percent of its market value.

Both were stocks that helped drive the Norwegian wealth fund’s bumper returns in 2020.

Norway's USD 1.3trn fund dumped Saudi shares, added Qatar 

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