Michael Crabb
Well, hi, everyone, and welcome to the next episode of the Energy Impact Podcast. I'm your host Michael Crabb. And I'm really excited to be joined today by Mie Holstad, the Chief Real Assets Officer at Norges Bank Investment Management. Mie, it's great to have you on.

Mie Holstad
Thank you, Michael, it's great to be here as well.

Michael Crabb
Well, I can't wait to get into all the exciting work that you're doing. But first, tell us a little bit about yourself, sort of how did you end up in your current role in the finance world?

Mie Holstad
Sure, sure. So I have always sort of been interested in what's going on around me, the international aspects of things, and I guess that's what put me here in the first place, working with finance. And I also think that, looking back at my career so far, it's a lot of coincidences why I ended up just here. My education, I hold two Masters degrees, one in professional accountancy and one in business and economics. And after I did my studies, I ended up in PwC. That was sort of the start of my career. And I think it was, looking back, it was one of the best places to start, because I-

Michael Crabb
Which group were you in?

Mie Holstad
I was both in in audit and consultancy, so very broad. And I think that is also something that has sort of given me the fundamentals that I have today, right, meeting with a lot of different industries, a lot of different relations, getting to know different people, how they worked. I learned a lot during those years. And then this great opportunity came along in Norges Bank. I have been here now, really, since 2010, so it's 11 years now. So quite a while. But it's been so many different opportunities along the way and the best one that I got was, of course, to join the unlisted real estate investment area, which I did back in 2010. And that was a new area back then for the fund, a new asset class which was about built up

Michael Crabb
Explain to our listeners unlisted real estate. There must be listed real estate, what is that? What does that all mean?

Mie Holstad
It is. Unlisted real estate is really the private or direct investments that we do. It's really about sort of owning the building, either through a joint ventureship, or 100% as we do in Europe as well. The list of real estate investments are through stock exchanges, right? So it's live data coming through every day. Two different worlds, but the same commodity, or end product, if you'd like. Today, I hold the role as Chief Real Assets Officer, which really means that I'm responsible for both our listed investments in the real estate space and the unlisted real estate space. And actually - I thought about this before we went on the call - because the portfolio is approximately 57 billion US dollars, and half of that is in the US. So that's pretty amazing.

Michael Crabb
I mean, you said 57 billion with a B, right? I mean, that must be a massive portfolio. So half in the US, is the rest sprinkled throughout Europe? Are you in Africa or APEC, other regions? Where do you- what's the geography of that?

Mie Holstad
Yep. For unlisted real estate, we do have a very focused strategy, so we are focusing on eight cities in total. In the US it's Boston, San Francisco, DC and New York, whilst in Asia, it's Tokyo, and in Europe, it's Berlin, Paris and London. I have a team operating in six different offices around the world so we have local people on the ground. And we do most of our investments through joint ventures, meaning that we have partnered up with big companies. In the US, for instance, Boston Properties and Kilroy and other major players in the market. And that is also something that we're thinking about with this new investment class that I'm also responsible for the renewable energy assets that we do have a mandate on now.

Michael Crabb
Yeah, what a great segway. You're doing my job for me. So let's talk about that. I think you said it was a new investment class, sort of the private, the unlisted real estate back in 2010. And so they said you did such a great job with that, let's do it again.

Mie Holstad
Yeah, yeah, of course. So 2020, 1st of January, we got the mandate to invest in renewable energy infrastructure assets, a long one, but the mandate is really a very broad mandate. I would say it's a mandate to invest along the whole value chain, so we can be invested in production, transmission, storage, distribution of renewable energy. And we are right now focusing on Europe and North America as the geographies and that is also restricted in the mandate. And we can go up to 120 billion Norwegian kroners, which is about, I think, 14 or 15 billion US dollars. It's a massive mandate. And we will, of course, take the time it takes to invest this No sort of time limit to it. And an important thing is that we need to invest alongside Joint Venture Partners, so that is really our strategy, because this is a hard industry and we don't have the capacity internally to go ahead and do this ourselves. That is an important thing that we also did when we built up the real estate investment area. We did it together with Joint Venture Partners, so we often tend to sort of say that finding the right partner is as important as finding the right assets. It goes hand in hand.

Michael Crabb
It always comes down to people, right?

Mie Holstad
Yeah, it does.

Michael Crabb
That's definitely how it goes. So I really want to get into the joint venture strategy. But let's step back for our listeners and talk a little bit about, you keep mentioning the mandate. You're in a little bit of a different position than maybe our listeners are used to, so talk about kind of how that happens, how those decisions are made.

Mie Holstad
Yeah, yeah, sure. I think for our listeners, I think it's really important, even maybe to take one step back to 1969 where Norway struck the oil. We found oil in the North Sea and we had a lot of politicians sort of thinking very smart about this, so we were lucky in that sense. They thought about sort of how to preserve this for future generations. And that is our mission statement as well, to safeguard and build financial wealth for future generations. And I think it's something very beautiful about that, right? To sort of work for your children, for your children's children, for your children's children and grandchildren. So that is a very important thing to sort of have in mind for the listeners, that this is a generational fund and it's here to stay. We really are very careful about how we use this fund in Norway. It's all sort of a sovereign wealth fund, right, which is managed by- or which is managed on behalf of the Norwegian people, so it all sort of starts with Parliament. And then Parliament says to the Ministry of Finance, this is the law. You have a mandate which you are to delegate to the central bank. So the Ministry of Finance delegates a mandate to the central bank and this is where the fund lies today, within the Norwegian central bank. But important in this all is that it's all sort of delegated investment authority, so the Parliament and the ministry doesn't really have anything to do with day to day management or investment decisions. The CEO has delegated a very clear mandate to be commercial in the market and to invest the money abroad. We are not to invest the money in Norway. And that is simply to avoid sort of Dutch disease and over upheaving the economy. But the way this fund works in Norway is that the politicians, they can draw on the fund when it comes to creating the national budget. They can grow up to 3% annually, which is what we forecast as their real return on the fund. And a recent example of that is how privileged we were during the pandemic. I think the fund then contributed about 25% of our national budget, which is really massive. And also, Michael, I think it's important for our listeners to know about the size of this fund, because it's enormous, right? It's 1.3 trillion US dollars. And half of it is invested in the US.

Michael Crabb
Oh, wow. Yeah, I don't know how to even picture, like quantify what that really means.

Mie Holstad
No, no, that's really hard, right? It's counting zeros then. And I think, on average, we have about 1.4% ownership in all sorts of listed companies around the world, 9,000 companies, so a lot of ownership in that. Yeah.

Michael Crabb
So you mentioned using the returns on that fund to fund the government's budget as well as future generations. Are you using cash flow from the portfolio? Are you buying and selling things to kind of realize those gains on the budget, or maybe a combination of both?

Mie Holstad
I think- we are using the real return on the fund. So when it comes to what I do, or what I am responsible for on the unlisted side, that is a really important part of it all to sort of have stable cash flows into the fund. That is a part of the overall mission why we are in unlisted assets and especially in real estate and renewable energy infrastructure. That is something else that I- the equity side and the fixed income side. So what we think is the real return of the fund, which is about 3% every year.

Michael Crabb
Oh, yeah. Very national inspirational mission, too. It's a big responsibility.

Mie Holstad
It is. And I think it is something that may not be that familiar to every listener out there, who we are and how large it is. It's also- the mission statement is such a nice one. And what we do is also acting through responsible investment. We are really trying to be responsible in every investment that we do, but always with a financial mission, not to be claimed, but of course to earn money.

Michael Crabb
Yeah, triple bottom line or whatever people use has profit as one of the pillars.

Mie Holstad
Absolutely.

Michael Crabb
But there are others, of course. You said 1.3 trillion. I mean, anything after the decimal really is- How many people manage - you mentioned leveraging JVs - how many people are part of the fund that are responsible for finding investments and managing those investments?

Mie Holstad
We are in total, I think about 540 people right now, something around that. So it's very cost efficient.

Michael Crabb
Yeah, that's a lot of work.

Mie Holstad
It is, it is. So a large sum on overhead, right? But I think you're pointing to something which is very important, because most of the investments are within the listed space. We have- in the mandate from the Ministry, it says that we can allocate about, or up to 70% in equities and up to 30% in fixed income. And then you have this unlisted space which I am operating in, which is way more human intensive. It requires more, because it's not standardized and it doesn't go through listed stock exchanges and just flow through the system. It needs manpower. It's like a shop in the shop if you'd like. And, in my area, we are just south of 60 people globally, so not too many people either. But we rely heavily on our partners. To find those partners in real estate with the local competency on the market, having people on the market or in the market managing the assets is really, really important to us. When it comes to renewables, it's not about finding the local partners, but the partners with the best expertise, because it's a different game. That is, for instance, that investment that we did, recently, back in April with the wind farm in the Netherlands, one of the very important things about that one is exactly our partner, Ørsted, which is the proven sort of market leader in the game. I guess we'll come back to that later. But yeah, the partner strategy is really important.

Michael Crabb
Yeah, yeah. A lot of ways we can go. Let's go to the JV strategy and sort of the timeline leading up to the first investment. You kind of described Parliament's as, Okay, we want to be in renewable energy. Here you go, Mie, figure it out, find our partners. So what do you do? I mean, you had focus cities in real estate, which is somewhat transferable, but still as labor intensive as you described, going to a renewable energy industry that is massive and feels like it's doubling every week. Did you kind of- where do you start?

Mie Holstad
Where do you start? It's a good question, Michael. I think what really was helpful for us as a team was the experience that we had through the unlisted real estate space. When things are unlisted, that's at least one common denominator, one thing to start from. And I think entering into a new asset class for the fund, as well, is also demanding, because we are a team in the chief real assets officer area, but then again, it's other teams as well, which needs to be involved and which needs to learn this new asset class. It's all about sharing information and collaborating. And luckily we had all this experience from the unlisted space in the real estate area. We have drawn a lot on that experience and looked to what the pitfalls were back then. I think one of the learning points was, of course, let's start with the JVs, because then we do have the competency out there. That sort of laid the strategy when we had the mandate from the Ministry. It's clear sort of how the funnel goes, right? This is your mandate. And then you need to sort of build out the strategy from there. And important then, this sort of focus on how much can we do in the beginning, which the renewable space is enormous, right? So where do we start? Our focus area right now is offshore wind and solar. That is what it says in the strategy, although we can do so much more. But these are technologies which we need to get our heads around and then you need to find the partner. You need to enter different countries and all the countries have different setups when it comes to subsidies, when it comes to regulations, how you're going to structure the investment. From our point of view, I think the best advice we can give is to start narrow. Focus on something. We have focused, although it says offshore wind and solar, we have mainly been focusing on- it says offshore and onshore wind and solar, but we have mainly been focusing on offshore wind. And the reason for that is simply because it's large projects, so we can deploy a lot of capital into one project, which is important to us. And that also goes back to being cost efficient, having a small team in the beginning, creating that fundament in the portfolio is really important to us.

Michael Crabb
Yeah. Could you share some more about how the JV with Ørsted came out? It sounds like you did sort of a mapping of the renewable space and the different technologies and you settled on a narrower subset. So it's kind of technology first and then JV. Is that kind of how it came about?

Mie Holstad
Yeah, I would say so. And the team would be better to talk about this than what I am, because they are laying out the grounds. And then they come to me and this is the strategy and I think it sounds great, have a couple of questions here and there. And so they are really the experts-

Michael Crabb
I feel like you're underselling your role in all of this, but that's okay.

Mie Holstad
I would love to have them here and to show you these experts, because they're just the best. But it's really about- we entered into offshore wind and then you look at the opportunity space. What's sort of in the market now which can fit our strategy? And what we look for is, first and foremost, the large ticket size and then sort of the market, of course. It's limited to Europe and North America. We are looking in those markets. What is moving, which is large in those markets? Okay, which partner is on this? Who has constructed it and who will be our maintenance and operating partner in this? And who's the seller, also? Being a sovereign wealth fund, it's sort of- you know that you have all this scrutiny on you. You know that you need to do the best investments. You are buying it to hold it. We're not buying it to flip it or to sell it in a couple of years. We are a long-term investor and that is really, really important to make the right decisions at the beginning. And I think also one important thing, which I haven't mentioned is that, in this business, it's a lot about also having leverage. Most partners need leverage, whilst we are in that lucky position that we don't need leverage and we can be a very efficient partner in that way. We don't need a consortium, either. We can take on very large deals. So that is something which I think a lot of our competitors can't.

Michael Crabb
Yeah, it's a bit of a small- starts to be an increasingly small universe of folks that can really cut those checks, right?

Mie Holstad
It does, it does, and they become larger and larger. So I think that is the real competitive advantage. Because in the minute you take on leverage, you all of a sudden pay out all your subsidies in the beginning, for instance, they go directly to the financial loan. It's a lot of reporting hassle. It's a lot of structuring that needs to be done. I think that is a real competitive advantage. Yeah.

Michael Crabb
Yes. Okay. Can we unpack that a little bit? Because I'm sure there are competitors or peers or other investors out there that say, Well, that allows me to sort of double my return, right? Leverage increases whatever the outcome is, positive or negative?

Mie Holstad
Yeah, yeah.

Michael Crabb
So how do you think about that and sort of your return? I know you can't share much about your return targets, but it changes the game a little bit. Have you seen that be a competitive advantage? Or have there been folks that have maybe beaten you to projects because they're willing to be a little more aggressive?

Mie Holstad
I think you're right. People can be more aggressive due to leverage. But that is also something that we factor in, into our pricing. And I think, in our mindset, it's really an advantage not being forced to take on leverage. We can take leverage if we'd like to, so it's in our mandate, but it's just something about the mindset of why we are doing this and how we want to sort of cash in those subsidies, which you get in the beginning, instead of selling it all out. That is an important factor in this for us to be able to not be exposed to direct sort of power price risk. So that is why we prefer either power purchase agreements or subsidies in these projects. And then we prefer to get it into the fund and having that stable income and that diversifier to the fund, so that is sort of the whole sort of train on that.

Michael Crabb
I guess that comes full circle to what you were describing with the budget, right? Some real return, you're not paying that out in interest in principle. You're using it continue to fund part of the government. Super interesting. So you talked about PPA sort of revenue, contracts and constructs. Can you maybe talk a little bit about how that's evolved, how it may be different from the real estate world? I mean, we've had a lot of different guests that have a lot of different business models, so it's super interesting, I think, for people to hear kind of what you've seen and how you've managed that part of the risk.

Mie Holstad
Yeah, yeah. So this is something totally different than what we have in the real estate space, because you don't have subsidies there. I think what is important to us now in the beginning is to look at what kind of subsidies do you have on each project. And that is, of course, also mirrored in the price of the projects and also in the competition on the different projects. I think for what we see in the market right now is that, of course, the subsidies are getting lower and lower and we need to be prepared for a time where there are no subsidies anymore. But what you need to look for, then, I guess, this is more the power purchase agreements which are in place. And I think that is also something that may be more and more attractive for companies as you would like more and more renewable energy into your business. It will be exciting to sort of follow in the market when we get there. But I think it's definitely some of the things that we are monitoring the most sort of how are these things developing? How do we capture that risk in the future? And these are sort of supply and demand things. It's really, really hard to forecast, so our team is, of course, doing a great job on that. But it's hard.

Michael Crabb
Yeah. I mean, as soon as I find someone that can perfectly predict the future, I'll-

Mie Holstad
Send them my way.

Michael Crabb
We'll see. Yeah, I mean, it's kind of the exciting part of it, right? And offshore wind is probably- I mean, it seems like there's this sort of dual-edged sword. You have this advantage that you're so big, but is it harder to disrupt those models? I mean, a company can take a small battery PPA, for example, or a small solar project, but what- have you found traction with companies contracting for offshore wind? I mean, that seems-

Mie Holstad
That is- yeah, you're totally right. It's a big advantage being as large as we are. But also it makes it more challenging as well, because you need to have scale. And that is, of course, very demanding and very hard. So you're spot on.

Michael Crabb
Yeah. And I guess it's just, maybe it's thinking about the technology evolution timeline. And so how much- I don't want to put words in your mouth. But you're in the more developed technologies that have started to really scale. I mean, the first offshore wind where tens of megawatts, and then now they're thousands. Are you monitoring some of the earlier stage technologies? Or by the time it's ready for you, you'll sort of see it? I mean, how do you sort of balance that?

Mie Holstad
Yeah. And I think you're right. We are monitoring all the technologies that come to the market, and some more than others, of course. But where we are at now, in the very beginning - we got our mandate back in 2020, so it's just like one year, or one and a half years - so what we are focusing on right now, which is also because we have a small team, is offshore wind and mature technology. So we are not currently sort of looking at floating wind or those hydrogen technologies, etc. I think that is also something that are for the future, of course, when things become more and more mature. And that was also the way we did it with real estate just looking at different geographies. We started out in Europe close to home. Then we went on to the US, and then we opened up for Asia, the same way we'll do with technology. Although the mandate, as I mentioned, is already there, but the strategy, that's where we have sort of narrowed that.

Michael Crabb
Yeah. Fascinating. It's kind of a fun puzzle to unpack. I know we're a little restricted on pushing you too hard about future investments, but maybe talk about what you feel is sort of the greatest challenge to you around executing this strategy and sort of serving this broad mandate, both the written mandate and the unwritten sort of societal mandate.

Mie Holstad
I think the biggest challenge, we have sort of already touched on it, is to find the right project, which sort of ticks all the boxes. And I think we did that very well with that first investment in the Netherlands, which was - I think it still is - Netherlands' largest operational wind park today. And I think it's still the world's second largest operational wind park. It's like twice the size of Manhattan. And it serves, I think, 1 million Dutch households when it comes to power, annual electricity consumption. It's sort of finding those right ones. That was a major ticket size. It was with Ørsted, which was - or is - our preferred partner. They have proven experience, and they have a great ESG profile. It was long subsidies lasting for 15 years. It's sort of, when we do the math, you get your invested amount, back during that subsidy period - almost all of it - so that is also something that we look at and ticking all of those boxes. That is our major challenge, of course, because as I mentioned, we're not sort of buying anything to sort of flip it a couple of years later. We are buying to hold and then we need to look long into the future. Using those lenses are really hard beyond the subsidy period. I think that is, of course, everyone's challenge, sort of forecasts what will happen in this area in the future. It's impossible, right?

Michael Crabb
Yeah. And it takes kind of whole ecosystem. I think one of the fun things about this podcast is you hear stories from all these perspectives, and maybe talk about - we're running a little low on time - but talk about the real estate diligence process and how that differs from here. Because they're both- you have similar philosophies: long-term hold, unlisted real assets. But I think the differences and pretty quickly, I would imagine, and having just gone through that yourself, maybe you could share some of the lessons learned from that?

Mie Holstad
Yeah, I think when we started out on this area, the renewable area, we looked to the real estate area, as I mentioned. Immediately you think that, okay, it's two unlisted areas. It's real assets, both of them. It may be quite similar, but of course it isn't and you quickly realize that. But the most similar part for me is maybe the transaction process. It's a long process. It takes about three to nine months. And I think the due diligence part is really a major part for us, because we would like to turn every brick and really kick the tires of everything. And we use a lot of external advisors to do so as well. I think the ESG part is, of course, a major part of renewables, which we also do on real estate, but it's a totally different game here. And it's a different game when it comes to the different technologies as well. Offshore wind is, of course, less demanding, I would say, than onshore wind. That is also maybe why we-

Michael Crabb
How so? I wouldn't have expected that.

Mie Holstad
No, but offshore wind is not close to your house, right? It's something about what do you meet where and when, and also the face that we go into these projects. It's not a coincidence that we have done operational projects so far, although the mandate opens for construction and it also opens for development. But starting out in the safe space is also a strategy, right? But pointing to- we do- I think the due diligence process is really similar on real estate and renewables and the structuring process is also quite similar. But I would say that it's a bit more heavy on the ESG side, on renewables. But what else, I think it's pretty similar.

Michael Crabb
Talk more about what ESG means in that context, because I think, on its face, clearly renewable- that's the E part of the equation, but talk about how the other components sort of play into this whole process.

Mie Holstad
I think looking at offshore wind and that wind park that we bought in the Netherlands, it was fully optioned, right? So the Dutch government had already done all of that ESG investigation. And also having Ørsted as the partner was sort of our main component in it. Although we did a lot of internal checks as well on everything from sea life to what's going on in the long run, how do we sort of cater for birds and everything that has annual cycles. And all of that is important that our partner knows how to deal with. I think that was how we managed all of the environmental, social and governance aspects of it all.

Michael Crabb
Yeah. And that really- has that been a recent theme across your whole portfolio? I mean, it's really sort of taken off. It's fascinating to me how it doesn't stop it, just the E part of it. These construction projects, they impact people's lives, and they employ people. And they are such key drivers to national growth in the jurisdictions where they are, so it's always really interesting to me.

Mie Holstad
Yeah, and it's big in the real estate space as well. Real estate is one of the industries which I think may have gotten a bit easy under the radar for some years. It's like buildings, it's 40% of the CO2, right? It's a lot done on that space, which we are working on, and putting out the sustainability strategy on all our assets, getting around to be carbon neutral, and all of that is just getting bigger and bigger.

Michael Crabb
That's really interesting. Is there some sort of dovetailing of these two strategies at some point? I mean, does it feel like- I don't know. I mean, how do you keep everything separate, but not separate? Given your size, it seems like there are some interesting synergies there.

Mie Holstad
Absolutely, but again, you need to have scale for them to connect. But hopefully they will do in the future, and we'll find some way of connecting it all. I think what is really great about being in this environment and being in Norges Bank is that you have a lot of expertise on ownership and ESG. It's a whole department working on that, with all our 9,000 companies. We have a lot of expertise in the house. And the important thing is to be able to use that and be able to collaborate. That is something we do with my area, with other areas like the risk area and the ownership area. We all have projects where we sort of look at how we can bring this all together and plan for the future. Definitely very interesting and very exciting.

Michael Crabb
I wish I could be a fly on the wall. Well, anything else? We're kind of close to wrapping up here. Anything else that you want to share? About the firm, about future, about your role? Anything that we didn't touch on that you'd like to talk about?

Mie Holstad
I think we have covered a lot during this session. It's been great speaking with you. And I hope that our listeners also have learned a lot about Norges Bank and they are, of course, very welcome to contact us if there is anything that they would like to know more about in the future. They're very welcome.

Michael Crabb
Excellent. Really great having you on, Mie. It was an absolute pleasure. And looking forward to seeing more announcements from your firm in the future.

Mie Holstad
Yeah, thank you. Thank you for having me.