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Norway's Giant Sovereign Wealth Fund Says There's Money to Be Saved by Identifying ‘Rotten Apples'

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  • "We think it's becoming more and more important to put resources into finding what I call the 'rotten apples.' These are companies whose state of health is perhaps not quite what it might appear," Norges Bank Investment Management CEO Nicolai Tangen said Tuesday.
  • "If we manage to find them early, there's money to be saved," he added.
  • His comments come shortly after the fund reported a record loss of 1.64 trillion Norwegian kroner ($164 billion) for the whole of 2022.

Norway's gigantic sovereign wealth fund believes it is becoming increasingly important to identify as many "rotten apples" as possible, saying there is money to be saved by reducing risks to companies whose state of health is not all as it seems.

Speaking at a parliamentary hearing on Tuesday, Norges Bank Investment Management CEO Nicolai Tangen said that the fund lost a "considerable sum" during the collapse of Silicon Valley Bank — the largest failure of a U.S. bank since the 2008 global financial crisis. He did not specify exactly how much the fund lost.

"We think it's becoming more and more important to put resources into finding what I call the 'rotten apples.' These are companies whose state of health is perhaps not quite what it might appear," Tangen said.

"If we manage to find them early, there's money to be saved," he added, citing the Adani Group as one example.

The Indian conglomerate's stocks were battered in the wake of a critical report from U.S. short seller Hindenburg Research. The Jan. 24 report accused Adani Group companies of "brazen stock manipulation and accounting fraud" — allegations that the conglomerate has denied.

Tangen said Norway's sovereign wealth fund previously had holdings in several of Adani's companies, but had already sold these assets by the time Hindenburg's report came out and share prices started tumbling. As a result, he said the fund was able to escape most of the associated losses.

"That's active management. We'll never be able to spot all of the 'rotten apples', but we can try to find as many as we can."

CNBC has reached out to Adani Group for comment.

Rising interest rates still a 'major concern'

Tangen said the fund would need to closely monitor more than just bear markets and so-called rotten apples. It would also need to protect itself from cyber-attacks and criminals.

His comments come shortly after the fund reported a record loss of 1.64 trillion Norwegian kroner ($164 billion) for the whole of 2022. In late January, Tangen described last year's market conditions as "very unusual."

The fund's previous largest loss was 633 billion kroner in 2008, during the global financial crisis.

Looking ahead, Tangen said investors would need to be prepared for several years of volatile markets, with the fund braced for "low and perhaps negative returns."

He also sounded the alarm on high global inflation, saying this remains a "major concern."

"The weapon being used to deal with it is higher interest rates. For banks and financial institutions that haven't done their homework, this could be very bad news. I fear we might see more international companies running into problems," Tangen said.

The $1.4 trillion fund was established in the 1990s to invest in the surplus revenues of Norway's oil and gas sector. To date, it has invested in more than 9,300 companies in 70 countries around the world.

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