The Nobel Foundation, a century-old legendary “investor”

  For the 2020 Nobel Prize, the prize money for each award is 10 million Swedish kronor (approximately RMB 7.6 million). This prize amount is consistent with the level of the first decade of the 21st century, but it is the first time since 2011 that it has returned to the tens of millions mark.
  The amount of bonus is related to the income of the Nobel Foundation. When the year is bad, the prize money for each award may be only 8 million or 9 million Swedish kronor. No matter how the quota is adjusted, the Nobel Prize bonus will always be distributed steadily. At present, the total assets under management of the Nobel Foundation are as high as 4.9 billion Swedish kronor, which can well support the needs of awards for a long period of time in the future.
  Assets shrink
  After his death in 1896, Swedish scientist Nobel left a legacy worth about 32 million Swedish kronor, which is equivalent to 180 million Swedish kronor at the end of 2019. In his will, he requested that the estate be used to create a fund and managed through safe investment methods. The interest earned from the fund’s investment is used to reward individuals who have made outstanding contributions in the five fields of physics, chemistry, medicine, literature, and peace each year.
  The requirements for “safety” and “interest” in the will laid the foundation for the stable distribution of the Nobel Prize in the future. “Safety” means that investment methods should not be radical. “Interest” means not moving the principal, but continuing to increase in value-the Nobel Foundation is essentially an investment institution.
  Even with a strong principal and a sound investment philosophy, the Nobel Foundation still encountered an economic crisis. For example, due to the narrow investment channels, it is difficult to keep up with the rate of inflation for the fixed interest of buying bonds or issuing loans.
  The bigger crisis comes from taxation. Until 1914, the tax burden of the foundation was about 10%, which was acceptable. However, the outbreak of World War I that year led the Swedish government to introduce a “temporary defense tax” in 1915, and the tax burden of the foundation doubled. In 1922, the taxes paid by the Nobel Foundation were even more than the prize money in 1923. That year, the prize money of a single prize was 115,000 Swedish kronor, which was a record low for the Nobel Prize. Even more embarrassing is that the foundation has become Stockholm’s first “big taxpayer” within a period of time.
  The Nobel Foundation’s early financial tests were all related to the war. The temporary defense tax was born out of World War I, and inflation was accelerated by the war. The year with the lowest actual value of the Nobel Prize prize was 1919-1920. The prize amount was 130,000 Swedish Krona, which was equivalent to 87% of the prize amount in 1901. But it was during the inflation period after the First World War, and the actual value of the bonus was only 28% of the bonus in 1901. In the three years before and after the end of World War II, that is, from 1944 to 1946, the prize amount was 120,000 Swedish kronor, but the value of the prize was also as low as 29% of the prize in 1901.
  After the war rebirth
  Fortunately, the war eventually subsided, the Nobel Foundation welcomed the opportunity to recover.
  One year after the end of World War II, in 1946, the Swedish government finally exempted the Nobel Foundation from its tax obligations. In 1953, the United States also joined the ranks of granting foundation tax exemptions. This allows the foundation to invest in Sweden and the United States without considering the tax burden. These two countries are exactly the two areas where foundation investment will be most concentrated in the future.
  In 1953, a new key policy was introduced, which was to break the restrictions on the investment channels of foundations. The securities market and real estate market, which were considered high-risk and unsafe in the past, are no longer restricted areas.
  The double relaxation of tax burden and investment channels has steadily improved the financial situation of the Nobel Foundation. Since the 1950s, the “gold content” of the Nobel Prize has increased year by year. The foundation first spent 30 years and pushed the bonus amount to the milestone of 1 million Swedish kronor in 1981. At this time, the value of the bonus was still only about 30% compared to 1901. After that, the foundation spent a short period of ten years. The value of Bell Prize prizes outperforms inflation. The prize amount in 1991 was 6 million Swedish kronor, and the value of the prize was 1.01 times that of the prize in 1901. It was the first time that the prize value surpassed the year of the Nobel Prize in the 90 years since the founding of the Nobel Prize.
  In terms of asset management, as early as 1987, the Nobel Foundation achieved the surpassing of asset value in 1901 through an operation called a “stroke of magic”.
  At that time, the Swedish real estate transaction tax increased, and the foundation divested most of its real estate business and independently established a subsidiary called Beva ringen (Beva ringen). The company’s boom in the stock market enabled the foundation’s assets to exceed 1 billion Swedish kronor for the first time, reaching 1.3 billion, which was 1.41 times that of 1901.
  The ultimate trick of “God Operation” is that the foundation quickly cashed out and transferred all the shares of the applicant’s company. The foundation not only made a fortune with this, but also escaped the crisis of the bursting of the Swedish real estate market bubble in the 1990s.
  After the completion of the asset value surpassing the heritage value of the year in 1987, the asset management of the Nobel Foundation has always maintained the effect of outperforming inflation. The peak year was 1999. The actual assets of the foundation were SEK 3.94 billion, which was equivalent to SEK 5.1 billion at the end of 2019, and the asset value was 2.79 times that of 1901. At that time, it was during the longest bull market in the U.S. stock market after the war. The concept of the Internet pushed stock prices to the last wave of peaks, causing the asset value of the Nobel Foundation, which holds many U.S. stocks, to soar.
  Investment model
  At the beginning of the 21st century, the Internet bubble in US stocks was punctured, and the market turned from bull to bear. The Nobel Foundation was naturally also hit. After the 2008 financial tsunami, the foundation failed to avoid shrinking assets. Fortunately, the foundation has no problems, and the value of assets has always been above the value of heritage. To achieve this, the investment strategy is more dominant than a few classic operations alone.
  The investment talents of the Nobel Foundation have established a specific goal: considering inflation, the foundation’s annualized rate of return is 3.5%. The foundation believes that this goal is very realistic, the corresponding investment risk is low, and the return obtained is sufficient to support the award of the Nobel Prize and other foundation operations.
  Based on this goal, the foundation has established a basic investment model. There are four main investment targets: stocks account for 55%; another 10% are fixed-income assets, such as funds, bonds, etc.; 10% are real estate; 25% are alternative assets, including hedge funds, etc.
  The model also sets the fluctuation range of each target investment ratio. For example, the proportion of investment in fixed-income assets can rise up to 55%, in order to cope with the large volatility of other target markets when the financial crisis occurs.
  The foundation also invented a benchmark index based on the same target ratio to estimate the foundation’s short-term investment income and evaluate the foundation’s financial management.
  In 2019, the foundation reduced its investment in the European and American stock markets, and instead transferred a quarter of its holdings to markets in other regions of the world. Thanks to the strong increase in the stock market this year, the foundation’s stock assets totaled 2.2 billion Swedish kronor at the end of the year.
  With total assets of 4.9 billion and asset value 2.68 times the value of heritage, the wealth of the Nobel Foundation has returned to the level second only to 1999-2000.
  Ethical controversy
  with respect to the financial test, the Nobel Foundation in recent years in terms of investment, more of a test by the ethical aspects.
  Environmental protection agencies have been accusing the foundation of investing in companies that manufacture arms or produce fossil energy, both in terms of humanitarianism and respect for nature.
  Among them, a report issued by a Norwegian environmental protection organization in 2017 directly pointed out that the objects of the foundation’s investment include Saab (Swedish aviation manufacturer, which produces weapons, and the public is more familiar with its automotive products), Rhein Energy (German fossil energy producer), etc. Traces of the enterprise. In addition, the foundation “probably” invested in companies such as Boeing and Exxon Mobil. Soon after the report was published, the Foundation announced that the 2017 Nobel Peace Prize had been awarded to the “International Movement for the Abolition of Nuclear Weapons”, which seemed to be a “cover” for investment misconduct.
  In fact, in March 2017, the foundation promised not to hold stocks and bonds of nuclear weapons manufacturers. Lars Heikensten, Executive Chairman of the Nobel Foundation, explained: “This (the report was released) is too unfortunate… We formulated stricter policies in March… At the latest in March next year, we will not Will reinvest in any objects connected with the production of nuclear weapons.”
  Although the Nobel Foundation has created a century-old miracle of “financial management”, people not only care about whether the foundation is healthy, but also monitor whether its huge assets are “in the right way” or “unjust money.” Relevant supervision under the prestigious reputation is always on the road.