Large benchmarked asset owners face a practical portfolio problem: how to allocate scarce active-risk budget across implementation, security selection, and allocation. We study this problem using evidence from Norway’s sovereign wealth fund, combining fund-level data from 1998 through 2025 with strategy-level evidence from 2013 through 2025. The most consistent gains came from implementation-oriented activities that scaled across a very large portfolio, including enhanced indexing, market-exposure management, and securities lending. Equity security selection also added value, though less uniformly. Discretionary allocation reduced benchmark-relative returns on average. The evidence suggests that asset owners with similar scale, benchmark governance, and internal implementation capacity should fund repeatable implementation advantages first, use security selection selectively, and apply a higher hurdle to broad discretionary allocation. The Norwegian case is distinctive, but the allocation principle is more general.
Døskeland et al. (Wed,) studied this question.