Alfred Nobel, the Swedish scientist, inventor, and entrepreneur who left most of his fortune as the foundation for the Nobel Prize, stipulated the assets from his estate should be invested in "safe securities" to sustain the endowment for the prizes.
Nobel made his fortune through his invention of dynamite, and he passed away in 1895. His will stated that the interest earned on the investments of his capital should be distributed as prizes. When the will was read, his family was shocked and opposed it, with the prizes finally beginning in 1901.
While Nobel's requirements may have been appropriate to the time and place in which he lived, in the decades since his death, the Nobel Foundation and those leading the organization have shifted their approach to meet with more modern investment styles.
The goal has been to maintain stability in the endowment to award cash prizes of the same or greater amounts. However, the history of the Nobel fortune and its investments has meant there have been significant shifts in the prize value over time.
- Alfred Nobel made his fortune primarily through the invention of dynamite.
- Upon Alfred Nobel's death in 1895, his will stated that the bulk of his assets would be given to an endowment to invest in "safe securities."
- The interest from these investments would then be distributed as prize money to individuals who have made a beneficial impact in specific fields.
- The capital is managed in a fund, whose investments included equities, fixed income, alternative assets, and real estate.
- The returns of the endowment fund determine the prize money that is distributed.
The Early Beginnings of the Nobel Prize
The first Nobel Prizes were awarded in 1901 and carried a cash award of SEK 150,000, equivalent to SEK 8.9 million in 2020, which is roughly $1 million in 2020.
The 2019 Nobel Prizes were worth SEK 9 million, which is about the same amount as 1901, adjusted for inflation.
In the intervening years, however, the cash prize associated with winning a Nobel Prize fluctuated quite a bit, influenced at least in some part by the investment success of those managing Alfred Nobel's funds.
Adjusted for December 2019 SEK values, the cash prize reached a minimum in 1919, when recipients earned SEK 133,127, equivalent to SEK 2.4 million in 2019. Though the prize climbed in value in the years following the Great Depression, from the 1940s through the mid-1980s, it hovered around the same value.
In many of these years, the prize award increased slightly, but the value of the cash prize in today's currency was roughly the same owing to inflation.
Significant Gains in Prizes in the Early 21st Century
By the 1990s, and especially into the new century, the cash value of the Nobel Prizes increased dramatically, reaching SEK 10 million in 2001 (SEK 12.5 million in December 2019 valuations) and staying there for many years.
By this time, the investors managing the endowment had started utilizing hedge funds to boost capital. However, with the 2012 awards, the Nobel Foundation announced that it would trim the cash prize by 20% to maintain appropriate levels of capital. At the time, the foundation also considered soliciting donations for the endowment to restore the value of the prize.
The five categories of the Nobel Prizes are peace, literature, chemistry, physics, and physiology or medicine.
In 2020, the Nobel Prize money was increased by SEK 1 million to SEK 10 million. The primary reason was that the investment capital of the endowment had grown from SEK 3.6 billion in 2012 to SEK 4.6 billion in 2020.
According to the organization's annual report, the goal of the endowment fund is to meet minimum annual returns of at least 3.5% above inflation. The fund invests in equities, fixed income, properties, and alternative assets (hedge funds). The breakdown of the portfolio is approximately 55% in equities, 10% in fixed income, 10% in properties, and 25% in alternative assets.
Ulrika Berman is the chief investment officer (CIO), joining the organization in 2017. Since her predecessor joined the foundation in 2012, the foundation has worked to shift the investments towards active equity holdings, attempting to lower fees while maintaining efficiency.
The Bottom Line
The money for the Nobel Prizes comes from the estate of Alfred Nobel. The capital is invested in "safe securities" per his instructions, and the interest (return) is paid out as prizes.
The endowment fund invests in equities, fixed income, real estate, and alternative assets with the goal of generating a target return of 3.5%.
Since the first prize was distributed in 1901, the prize amounts have fluctuated depending on how well the investments have performed. The investments have been impacted over time due to many global events: social, political, and economic, primarily throughout the 20th century.