While the average return on the foundation’s total investments stood at 0.6 percent in those five years, the equities portfolio had a loss of 2.4 percent.
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 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 managed fell. Since then, it has been allowed 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 kronor terms was restored by 1991.
Cost Cuts
The Nobel Foundation is also trying to cut costs and has approached suppliers of its lavish award banquet––held each year on Dec. 10 in Stockholm City Hall, after the prizes are announced––in an effort to negotiate price cuts as steep as 20 percent. The roughly 1,300 guests include the Swedish royal family.
The state of the foundation’s finances is “definitely not a crisis,” Heikensten said. “We could have gone on like that for 30 years, but it’s better to start doing something in good time.”
The Nobel Foundation wants to cut annual costs by about 20 percent to match the reduction in the prize money, he said.
The foundation has also brought in external advisors and will cut the number of investment alternatives to as low as 20, from 40 previously. That will make investing more manageable, Heikensten said. All the measures together will help bring returns to 3 percent, he said.
“It will depend on the world economy, and the situation is difficult, but I think it should be achievable,” Heikensten said. “We definitely don’t want the prize to go down, and I think we should have the ambition to keep its value in real terms in Swedish kronor, which has been the case since 1901––that’s the minimum ambition one should have,” he said.
The 10 million kronor paid to laureates last year is equivalent to 123 percent of the inflation-adjusted amount first awarded in 1901. This year’s prize, in real terms, was less than the original award for the first time since 1990, according to information available on the Nobel Foundation’s website.