(Bloomberg) -- Norway’s $1.5 trillion sovereign wealth fund is bracing for lackluster performance from the markets in the years to come as inflationary pressures are likely to remain.

“We are not very optimistic when it comes to returns,” Chief Executive Officer Nicolai Tangen said in an interview on Bloomberg TV at the World Economic Forum in Davos. 

“There is more underlying inflationary pressure and I think it’s going to stay there for longer,” he said. “I do think the international central banks will be very, very careful in cutting rates too quickly because they were too slow in putting them up.”

Created in the 1990s to invest Norway’s oil and gas revenues abroad, the fund — also known as Norges Bank Investment Management — is the world’s biggest single owner of equities. NBIM today holds stakes in over 9,000 companies, or about 1.5% of all shares in the world’s listed companies, as well as assets in fixed income, real estate and renewable infrastructure. That gives the fund a unique view on the health of the markets.

“We’ve got some underlying inflationary pressures, we’ve got wages demand really high in a lot of countries, and that should lead to some spiraling of inflation going forward,” Tangen said Monday. “Then we have some climate effects, which are negative on pricing, you have geopolitics, you have trade routes, many things — it’s just not a very happy cocktail.”

Speaking earlier on Monday, BlackRock Inc. Vice Chairman Philipp Hildebrand said slowing consumer-price growth is giving financial markets a false sense of security and that inflation could turn out to be stickier than anticipated. Inflation is also likely to stop the European Central Bank from lowering interest rates this year, according to Governing Council member Robert Holzmann.

Read More: BlackRock’s Hildebrand Says Fed Rate Cut Bets Too Optimistic

The fast pace at which central banks jacked up rates had an effect on the economy, with especially negative implications for indebted companies and the real estate market, Tangen said, adding that most of the “big jump in the cost of capital” is probably over and “from here it’s probably going to normalize a bit going forward,” Tangen said.

“Money is not free anymore and I don’t think it will be for a long period of time,” he said.

Since taking over in 2020, Tangen has urged his traders to think more contrarian and take advantage of the long-term nature of the fund. He has also pushed for the fund to be a more active shareholder, with a stronger stance on ESG issues and corporate governance.

The fund lost $34 billion in the third quarter after financial markets were dented by global growth concerns. That came after a rebound in technology stocks yielded a $143 billion return in the first half of 2023. The investor, which largely tracks a benchmark index based on a framework handed down by parliament, is due to release key figures for the full year on Jan. 30.

Read More: Norway’s Wealth Fund Posts Losses Across All Asset Classes

He also cautioned that known risks are less worrisome than the unexpected factors.

“You know what really derails things is the things we never thought about: the financial crisis, an earthquake, Covid, those types of situations,” Tangen said. “That’s what’s going to derail it and we don’t know what the joker for 2024 is going to be but for sure it’s going to be something that none of us have thought about.”

(Updates with comments from second paragraph)

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