Nobel Foundation Seeks Charity as Hedge Funds Aren’t Enough

The Nobel Foundation, which said last year it was using hedge funds to help boost capital, is now considering charitable donations after previous strategies failed to bring in enough money.

The Stockholm-based institution, which earlier this month rounded off its 2013 awards, cut the prize money by 20 percent last year in an effort to preserve capital. Since then, laureates have had to make do with 8 million kronor ($1.23 million) in each category. Lars Heikensten, executive director of the Nobel Foundation, says he wants to raise the amount again to restore the award’s status.

“There is a long-term problem if we want to raise the ambition level, which I’d like to see us do,” Heikensten said yesterday in an interview at the Nobel headquarters in the Swedish capital. “It’ll be difficult to save more and it will also be difficult to maintain costs at the current level. This indicates there will be a need for more money over time.”

The Nobel Foundation, created in 1900 at the request of Swedish industrialist Alfred Nobel to award prizes in physics, chemistry, medicine, peace and literature, is cutting costs after expenses outstripped income for a decade. Poor returns over the same period were then exacerbated by the onset of the global financial crisis. Given the circumstances, the foundation says it had no choice but to lower the prize last year for the first time since 1949.

Hedge Funds

Relying on hedge funds over standard equity indexes over the past year would have resulted in relative losses. The HFRX Global Hedge Fund Index rose 5.4 percent over the past 12 months, compared with a 17.6 percent increase in the MSCI World Index of stocks over the same period.

The foundation “should of course continue to try to improve our asset management, but I’m not sure that will be enough,” Heikensten said. He didn’t say which hedge funds were used.

The return of 7.9 percent on invested capital in 2012 was “a little bit better than our benchmarks,” Heikensten said. Returns this year have so far “been better” than benchmarks, he said.

The foundation tracks its returns against gauges that include pension funds and other asset managers as well a so-called normal portfolio, in which equities account for 55 percent of the total and alternative investments and fixed-income instruments make up 25 percent and 20 percent, respectively. Though it has stepped up its reliance on hedge funds in recent years, equities continue to make up the bulk.

Nobel Banquet

The foundation had 3.1 billion kronor in investments at the end of 2012, according to its website. Of the total, 51 percent was invested in equities, up from 47 percent at the end of 2011, while 16 percent was held in fixed-income securities, down from 20 percent a year earlier. The foundation invested 33 percent in alternative assets, unchanged from a year earlier.

Of the Nobel Foundation’s total capital, as much as 94 percent is based on the original contribution made by Alfred Nobel.

The institution’s cost cutting measures include spending less on the awards banquet, which takes place on Dec. 10 every year to commemorate the anniversary of Nobel’s death. The roughly 1,300 guests include the Swedish royal family. The foundation targets a 20 percent reduction in costs, a goal it hopes to reach by the end of this year, Heikensten said.

‘Beef Up’

While the foundation has “absolutely no plans” to seek donor capital now, it will need to explore the option “in the coming years,” Heikensten said. Steps could include a broad campaign globally to attract donors or to target organizations or investors individually to “help beef up our capital,” he said. Any arrangement must safeguard integrity and independence of the Nobel award, he said.

Other options include making money on the Nobel brand, such as opening more Nobel museums outside Sweden and Norway, Heikensten said. The foundation is already building a new Nobel Center on the Blasieholmen island in Stockholm. The center, which is due to open in 2018, is being financed mainly through donations from the Ehrling-Persson Family Foundation and the Knut and Alice Wallenberg Foundation.

Heikensten, a former governor of the Swedish central bank, also said the Nobel Foundation should aim to increase the prize amount in line with wage developments rather than inflation. The amount today only represents about 10 times a professor’s salary, compared with about 30 times when the prizes were founded, he said.

World Wars

Heikensten, who became executive director in 2011, said he doesn’t expect the prize amount to be raised during his tenure in the coming years.

Alfred Nobel signed his will in 1895, a year before his death, stipulating that most of his estate of more than 31 million kronor -- about 1.7 billion kronor in today’s money -- should be converted into a fund and invested in “safe securities.”

Following two world wars, the foundation changed its investment policy with the backing of the Swedish government in the 1950s, after the total amount under management declined. Since then, it has been free to invest in bonds, secured loans, real estate and most types of stocks. This, together with a tax-exemption in 1946, helped the Nobel Foundation reverse the trend of declining assets under management and the real value of the prize amount in krona terms was restored by 1991.

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