Ethical Investments and the ethics of hindsight

Bruno Gerard, Espen Henriksen

No one should be held to the impossible, even Jonas Gahr Støre.


There has been lot of noise in the media about Mr. Støre’s family investment portfolio. It is claimed that the Egerton Capital Equity Fund in which Mr Støre was invested had invested in a company that was on exclusion list for the Norwegian Oil fund.

How could Mr Støre have dared invest in such a fund, and how could he in good conscience keep his investment in such an “unethical” fund?

How could he have not known, when he decided to invest in the fund more than 17 years ago that the fund would, a few years later, invest for about 6 months in a company that at the time the fund held it, was on the list of the companies  excluded from the oil fund  for ethical reasons.

Things to keep in mind

There are a few things to keep in mind.

First, Mr Støre family invested in the fund before the year 2000, long before ESG concerns in investments became more prevalent. Expecting that Mr Støre should have made ethical concerns clear at the time of investment was originally made is quite unreasonable. After all Norway started to consider ethical issues for the oil fund in 2004 and the UN Principles of Responsible Investment were only drafted in 2006.

Second, the UN principles do not specify a list of excluded companies.

Third, Egerton Capital is a UK asset manager, that complies to all the ethical rules required by the UK regulatory authorities.

Fourthly, it is unreasonable and unrealistic that he should have monitored his investments more closely and acted more quickly. You would have to be either an extremely sophisticated full time investor or one of the largest investor in the fund with a compliance staff on its own to do that.

Non-flamboyant hedge fund

Edgerton manages mutual funds and hedge funds, and Støre is invested in the mutual fund. Egerton is one of the most respected, non-flamboyant, well managed asset manager in the UK. They have been doing what they are doing successfully since 1994, and have engaged in any of the behaviors   that have given a poor reputation to the industry.

Fifthly, even if the Edgerton’s mutual fund held Northrop on Mar 31, 2016, it is not even sure that Støre’s could have found out, and certainly not before 2012.  The fund was launched  and registered in Ireland in 1995. Ireland did not require mutual funds to disclose holdings, and Egerton would not do so to avoid copycats. On May 28 20129 , Egerton launched a USD denominated version mutual fund, available in Europe and the US, using the same strategy as the fund in which Mr Støre invested. Because, the fund was available in the US, Edgerton had to file with the SEC, the US regulator, quarterly reports of the holdings in the mutual fund. It did not need to file such reports in the UK or Ireland. These holding reports can be obtained from the SEC. This is how the newspapers have found out that the mutual fund held Northrop shares on March 31 2016 and on June 31 2016. But would you reasonably expect to be aware that the fund one was invested in the UK was now available in the US and its holding disclosed quarterly. And who would have been aware on how to actually obtain these filings?

Would any of us have done better?

Lastly, would any of us have done better than Støre? The usual advice, if we have limited savings, is to buy one of the mutual funds available in Norway. One may believe that the active managers of Skagen fondene will generate excess returns, or that the safest and cheapest is to invest in an index fund as offered by KLP.

If you consult the web site of either company, you will be guaranteed up front that they both follow ethical guidelines.  Surely, you believe, if I had invested in either funds I would have avoided Mr Støre’s predicament.

Well, not so sure… Can you check? We are professors of Finance and we specialize in portfolio management, and even for us it is not easy to find out. It turns out that the KLP funds would have been safe for Mr Støre. Could we find this information easily? Not really. Could a non specialist find it easily? Less likely. Was that information easily available 17 years ago, when Mr Støre did his investment? Extremely unlikely.

What about the Skagen funds? Well they follow ethical guidelines, but they do not have an exclusion list. Could you be sure that they did not invest at one time in the past in one of the oil fund excluded companies? Absolutely not! Can you check? No.

So not even in Norway, with a respected highly performing fund company, following ethical guidelines, would Mr Støre have been safe!


The article was first published in Dagens Næringsliv (tin Norwegian) on September 11th, 2017.

Published 16. October 2017

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