The Norwegian Sovereign Wealth Fund's $92 Million Excel Error

FT Alphaville: Last year, Norway's $1.5tn sovereign wealth fund revealed that it had lost NKr980mn, roughly $92mn, on an error relating to how it calculated its mandated benchmark. Here's what Norges Bank Investment Management said at the time: "In February this year, a calculation error was discovered in the composition of the index we're measured against. This error led to a marginal overweight in US fixed income relative to global fixed income. When this was discovered, we immediately set about correcting it, but because the fund is so large, the return was 0.7 basis points. Due to this our previously reported positive relative return of NOK 118 billion was adjusted down to NOK 117 billion." It is a good example of how even tiny operational mistakes can have mammoth-sized consequences in nominal terms when you manage one of the world's biggest pools of capital. Sometimes a mistake can even lead to a windfall -- such as in 2021, when NBIM apparently made NKr582mn by accidentally accumulating an outsized position in a rising stock. But the 2023 index snafu is by far the biggest the fund has registered, almost twice as large as the cumulative operational-accidental losses it suffered from 2010-20. Alphaville was intrigued. What exactly went wrong? Well, in a recently-released anthropological report commissioned to investigate its own culture, NBIM seems to have inadvertently revealed just how minuscule the mistake was. Here's an NBIM employee called "Simon" recounting the debacle to the report's author, Tone Danielsen. Alphaville's emphasis below: "Last year (spring 2022) we had an off-site. One of our workshops was on 'Mistakes and how to deal with them.' We wrote post-it notes, classifying them into different categories from harmless to no-goes. One of my post-it notes, I remember it vividly, read: Miscalculation of the Ministry of Finance benchmark. I placed it in the category unforgivable. When I wrote that note, I honestly couldn't even dare to think about the consequences. And less than a year later, I did exactly that. My worst nightmare. It was a manual mistake. My mistake. I used the wrong date, December 1st instead of November 1st which is clearly stated in our mandate. The mistake was not revealed until months later, by the Ministry of Finance. They reported back that the numbers did not add up. I did all the numbers once more, and the cause of the mistake was identified. I immediately reported to Patrick [Global Head] and Dag [Chief]. I openly express that this was my mistake, and mine alone. I felt miserable and was ready to take the consequences -- whatever they might be."

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