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This is how we work with risk in the fund | Risk Summit 2026 | Norges Bank Investment Management
Summary
The emergence of low-cost AI technology is significantly impacting technology stocks, particularly in the software sector. Geopolitical conflicts are creating a complex environment for investment management, necessitating advanced risk assessment strategies. The current geopolitical landscape complicates risk assessment, necessitating innovative frameworks for evaluating complex risks like sanctions and supply chain disruptions.
MBM has significantly enhanced its risk management department since the financial crisis, focusing on integrating artificial intelligence to better inform investment decisions. The reliance on AI for risk management assumes that data-driven models can adequately capture the nuances of geopolitical dynamics, which may not account for unpredictable human behavior or emerging global trends.
Scenarios are essential for risk communication and preparing teams for various outcomes. The securities lending strategy has significantly contributed to long-term performance but carries considerable counterparty risks. Continuous monitoring of counterparty credit quality is essential to navigate market volatility and mitigate risks.
Tail risks in financial markets occur more frequently than expected, necessitating proactive management in securities lending. An AI tool has been developed to monitor global news for negative developments related to counterparties, enhancing financial decision-making.
Perspectives
short
Proponents of AI in Risk Management
- Integrate AI to enhance risk assessment and decision-making
- Utilize scenario analysis to prepare for various market conditions
- Develop tools to monitor geopolitical and counterparty risks effectively
- Employ AI for continuous monitoring of sustainability risks across portfolios
- Implement collaborative frameworks for risk management across teams
Skeptics of AI Reliance
- Question the ability of AI to capture complex market dynamics
- Highlight the unpredictability of geopolitical and financial crises
- Critique the effectiveness of AI in interpreting nuanced local conditions
- Express concerns about the potential for unrecognized biases in AI outputs
Neutral / Shared
- Acknowledge the evolving nature of risk management in investment
- Recognize the importance of human oversight in AI-driven processes
- Emphasize the need for continuous improvement in risk assessment methodologies
Metrics
growth
80%
gains in the stock market this year
This indicates a significant reliance on AI for market performance.
About 80% of the gains in the stock market this year have been powered by AI please.
confidence_interval
95%
risk assessment by the risk department
A high confidence interval suggests a rigorous approach to risk evaluation.
they came back with a 95% confidence interval and some downsides and arials.
defense_spending
5% of GDP
NATO's increased defense spending
This shift indicates a significant change in military priorities in response to security concerns.
last year NATO decided to increase the defence spending up to 5% of GDP.
loss
37%
potential loss in fund value due to geopolitical tensions
This highlights the critical need for robust risk management frameworks.
the fund can lose 37%
value
$2 trillion USD
current value of the fund
Understanding the fund's scale is essential for assessing risk exposure.
the value of the fund on the left side is 20 billion, 20 billion, an horizon, 20,000 billion
deliveries
2,000 billion Norwegian kroner NOK
total securities lent over the past year
This volume indicates the scale of the lending strategy and its potential impact on the fund's performance.
we've lent securities worth almost 2,000 billion Norwegian crooner.
revenue
6 billion kroner in 2025 NOK
expected excess return for the fund
This projected revenue highlights the profitability of the securities lending strategy.
six billion crooner in 2025 in access return for the fund.
exposure
10% of the NAV of the fund
percentage of the fund's net asset value exposed to securities lending
This exposure level underscores the significant risk associated with the lending strategy.
10% of the nav of the fund, like Trudas said, is 2 trillion crooner.
Key entities
Timeline highlights
00:00–05:00
The emergence of low-cost AI technology is significantly impacting technology stocks, particularly in the software sector. Geopolitical conflicts are creating a complex environment for investment management, necessitating advanced risk assessment strategies.
- Low-cost AI technology is driving down technology stocks, especially in software, indicating AIs growing impact on market trends and investor attitudes
- Ongoing conflicts in Europe and the Middle East are creating an unstable geopolitical environment that affects global trade and investment strategies, making risk awareness essential for investment management
- Risk professionals face increased complexity due to the interconnection of geopolitical, AI, and credit risks, requiring a more sophisticated approach to risk assessment
- The CEO of Norges Bank Investment Management highlighted the critical role of risk management in protecting the savings of the Norwegian people amid current challenges
- AI is reshaping industries and introducing new, not fully understood risks, prompting investment professionals to adjust their strategies and risk management frameworks
- The inaugural risk summit for Norges Bank Investment Management demonstrates the organizations dedication to tackling modern risk management challenges through expert engagement and knowledge sharing
05:00–10:00
MBM has significantly enhanced its risk management department since the financial crisis, focusing on integrating artificial intelligence to better inform investment decisions. The current geopolitical landscape complicates risk assessment, necessitating innovative frameworks for evaluating complex risks like sanctions and supply chain disruptions.
- MBM has enhanced its risk department since the financial crisis, recognizing that previously overlooked risks are more significant than expected. This growth highlights the value of learning from industry leaders to improve risk management practices
- Integrating artificial intelligence into risk management is a priority for MBM, focusing on how risk data can better inform investment decisions. This is essential for navigating the complexities of todays financial environment
- Transparency is fundamental to MBM, as it seeks to foster trust through open operations. This commitment also raises awareness of external factors, promoting a collaborative atmosphere for knowledge sharing
- The current geopolitical situation complicates the assessment of intricate risks like sanctions and supply chain disruptions. This complexity demands innovative frameworks for effectively evaluating and stress-testing geopolitical risks
- Martas presentation contrasted historical cooperation among nations with the current fragmented geopolitical landscape. This change emphasizes the urgent need for renewed collaboration to tackle global challenges
- The rise in NATOs defense spending signals a response to escalating security concerns, indicating a major shift in military priorities. This development could have significant implications for international relations and defense strategies
10:00–15:00
The geopolitical landscape has shifted from cooperation to competition, significantly affecting investment strategies and highlighting the importance of political risk analysis. This evolution necessitates a comprehensive approach to risk management, incorporating scenario simulations and expert consultations to navigate complex global dynamics.
- The shift from cooperation to competition in the geopolitical landscape challenges previous assumptions about international relations, impacting investment strategies as stability is no longer guaranteed
- Political risk has evolved from a minor concern to a crucial element in investment analysis, with oversight potentially leading to significant financial losses
- Geopolitical risk analysis relies on four pillars: stakeholder communication, scenario simulation, financial integration, and expert consultation, ensuring readiness for diverse risks
- The funds scenarios address major threats like inter-nation wars, financial sanctions, and investment restrictions, which are vital for understanding global financial complexities
- Annual horizon scanning identifies key risks, analyzes their economic impacts, and assigns probabilities based on expert insights, enabling timely investment strategy adjustments
- A specific stress scenario, labeled fragmented world, suggests a potential 37% loss in fund value due to a breakdown of trust among nations, underscoring the importance of geopolitical risk management
15:00–20:00
Scenarios are essential for risk communication and preparing teams for various outcomes. The securities lending strategy has significantly contributed to long-term performance but carries considerable counterparty risks.
- Scenarios play a crucial role in risk communication, fostering discussions and preparing the team for various potential outcomes
- Matthew Brinett manages the securities lending strategy, which has significantly boosted the funds long-term performance, but it also entails considerable counterparty risks that require careful oversight
- While counterparty defaults are rare, they can result in substantial losses, as seen during the Lehman Brothers collapse, influencing current risk management practices in securities lending
- The fund has lent nearly 2,000 billion Norwegian kroner in securities over the past year, necessitating active risk management to adapt to market conditions
- Collateral in securities lending often comes from major international investment banks, complicating the risk profile and requiring a deep understanding of transaction dynamics, especially in volatile markets
- Although the strategy is labeled low risk, it carries significant tail risks linked to hedge fund activities, demanding a proactive risk management approach to prevent negative outcomes
20:00–25:00
Tail risks in financial markets occur more frequently than expected, necessitating proactive management in securities lending. Continuous monitoring of counterparty credit quality is essential to navigate market volatility and mitigate risks.
- Tail risks in financial markets are more common than previously thought, requiring proactive management in securities lending to mitigate potential impacts
- Counterparty default remains a critical risk, as events like the Lehman Brothers collapse, though rare, can still occur and affect lending decisions
- Assessing asset risk linked to loans and collateral is essential for navigating market volatility and maintaining financial stability
- Institutional lenders often use insurance to reduce risks, but its reliability during crises must be carefully evaluated to ensure commitments are met
- Traders need to evaluate whether transaction revenues justify the associated risks and how each deal influences the overall portfolio risk
- Continuous monitoring of counterparty credit quality is vital, as rapid deterioration can significantly alter risk exposure and necessitate strategy adjustments
25:00–30:00
An AI tool has been developed to monitor global news for negative developments related to counterparties, enhancing financial decision-making. Regular drills and response plans are in place to manage potential defaults and improve risk management processes.
- An AI tool monitors global news for negative developments related to counterparties, ensuring timely awareness of events that could affect financial decisions
- Response plans are established to manage potential defaults, clarifying team responsibilities for effective action during crises
- Regular drills with multiple teams identify weaknesses in procedures, leading to enhancements in collateral processes and contract terms
- The legal team uses AI to analyze contracts, improving understanding of collateral access and credit rights, which strengthens risk management
- Active management of tail risks in securities lending is crucial, emphasizing credit quality monitoring and asset exposure management
- A recent stress test report modeled various scenarios, showing that while crises occur, markets often recover quickly, underscoring the need for ongoing scenario analysis