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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.
We’ve all made Excel mistakes – the report only references “gigantic spreadsheets”, which we assume has to mean Microsoft’s finest product – but this must surely be the most consequential misdated cell in history.
Patrick du Plessis, the global head of risk monitoring at NBIM, told the anthropologist that he felt “physically ill” when he was told about it. Which is pretty understandable. You can read a longer recounting of the event on page 45 of the report, under the heading Dealing with mistakes. (It doesn’t specify how this error messed up the calculation — Alphaville asked NBIM for more details, but they declined to comment any further.)
Nicolai Tangen, the fund’s chief executive, did reference it in a speech to the Confederation of Norwegian Business last month, although he suggested it was a decimal error. Alphaville’s translation below:
Imagine coming home from work one day and telling [your partner] that today I made a mistake that cost 40 hospital beds, 80 football fields and a tunnel on the west coast. That’s no fun, right?
A while ago we made a mistake like this in the fund. We made a calculation error in the composition of the index we’re measured against. That one small decimal error cost 900 million.
To make a long story short — what we thought was a watertight process proved to be a little leaky. What we thought couldn’t happen, happened anyway. It was so expensive that several of my colleagues became depressed.
But we fixed the mistake quickly, and it won’t happen again. At the same time we became much wiser about how it happened. Why? Because no one tried to hide, and no one’s head was chewed off.
Indeed, the anthropologist report indicates that Dag Huse, NBIM’s head of risk, actually initially told the fund’s senior management that the mistake had been his, and that Tangen quickly emailed “Simon” and Patrick du Plessis to reassure them.
Guys,
Dag informed me of the issue with the benchmark calculation.
These things happen! We run a complex operation and I am more surprised that we historically have had very few, or no incidents like this. You are both super professional and important contributors to NBIM’s success.
Don’t let this ruin your weekend.
Onwards and upwards!
Nicolai
We’re pretty sure Simon’s weekend was already ruined anyway, but it’s a nice touch.
Anyway, let us know your own worst Excel misadventures in the comment box below. Anyone who beats Simon’s — and has the receipts to prove it — get a T-shirt from Alphaville’s swag shop.