Lars Heikensten, head of the Nobel Foundation, discusses the future of the most prestigious prizes – including the infamous three-person rule, lack of female winners, and why it might be relying on hedge funds.

Every year on the 10 December – the anniversary of Alfred Nobel's death – the city of Stockholm comes alive with celebration for the new Nobel Laureates in Physics, Chemistry and Medicine, as well as Literature and the Prize in Economic Sciences. (The Peace prize is awarded in Oslo – at the time of Nobel's death Sweden and Norway were united under one monarch.)

Those lucky enough to be awarded a Nobel prize experience a rare glimpse of the celebrity lifestyle. The prize ceremony and Nobel banquet are glitzy white-tie events where Laureates and their families meet and dine with royalty, their words become front-page news, and every minute is broadcast live in TV.

Behind the prestige and glamour is the Nobel Foundation, which is responsible for managing Alfred Nobel’s funds in accordance with his will. Nobel may have died in 1896, but the interest on his wealth continues to fund the institutions responsible for choosing the prizes each year – which for medicine is the Karolinska Institute, and for physics, chemistry and economics is the Swedish Royal Academy of Sciences.

Since the first Nobel prizes were awarded in 1901, the foundation has seen both science and society change radically, not to mention seeing the odd bit of controversy. On the eve of this year’s festivities, Lars Heikensten, Executive Director of the Nobel Foundation, talked to BBC Future about how they are trying to maintain Alfred Nobel's original vision, and the success of the prizes for years to come.

What is your role at the Nobel Foundation?
I’m not involved in the actual decisions on the prizes, this is done totally independently by the prize-awarding institutions. My main task is to take care of the money left by Alfred Nobel, basically run the system that keeps these prizes together, and deal with the various issues that come up with regards to how our name is used in different contexts. To preserve its name, it is essential that the process of rewarding prizes works really well, and we keep an eye on that – when it comes to processes, we act as a forum for discussion between the institutions that award the prizes.

What’s most important for maintaining the success of the Nobel prizes in the 21st century?
I think that the most essential aspect is that the prize-awarding institutions are doing their job with competence and with integrity, as they have on the whole been doing over the last 110 years. That’s where most of the value lies.

At the same time I am not sure that doing exactly the same, and only that, will be enough in the future, given the way our societies are evolving, and given the reach of the Nobel name. I think it’s also important that we do other activities to communicate with the outside world about what we are doing, what the prizes mean and so on. If you read about Alfred Nobel you can’t avoid the feeling that had he been around, he would have wanted us to do more with the name he created, that I’m fairly sure about. He was an entrepreneur looking for opportunities all the time to make the world better.

Given the economic difficulties, and given the difficulties that we and other people who have been investing over recent decades have had, I can also see a point in us gradually developing these other activities in such a way that we are doing good things in the Nobel spirit and that at the same time earning a certain margin on some of this, to create an economic buffer for the system as a whole. We have been arranging conferences of various kinds on which we can earn a margin via sponsorship, for example. I do not think that we should use Alfred Nobel’s money for these other things, they have to be developed with other kinds of money – donations, entrance fees to museums, government grants, whatever. When we do that we have to be careful that we involve ourselves with partners whom we can trust, whom we believe are in line with our basic aims.

One controversial decision in the past was the creation of a new prize in Economic Sciences in 1968. Your recent predecessor was adamant that there would not be another Nobel prize established, do you feel the same way?
A decision has been taken by the board, and I’m not someone who would question that. But at the same time, who knows what will happen a hundred years from now. This is for coming generations to decide on how they will deal with the trademark, or this name.

Are you saying “never say never” to a new Nobel prize, then? What would make you change your mind?
I’m not really speculating in it happening. We are approached, maybe not constantly, but certainly we are approached by people who suggest [a new prize], and we always say no because that’s how we feel right now. There are no plans to do such a thing, but who knows what could happen in 100 years from now.

One of the main criticisms about the science prizes has been the statute that a maximum of three people can be award a prize. Why was the rule made in the first place?
I honestly don’t know if Nobel has written anything on this. But I’ve heard that he was clear somewhere on the fact that it was a way of avoiding the prize being spread over too many people, thus forcing the people who are awarding the prizes to make serious choices, and also not diluting it in the sense that it would risk having too many people getting the prize. I think the people involved in the prize-awarding process would agree that in this respect it has made sense, it focuses the discussion on choosing those people who were absolutely central to the achievements they want to reward.

Having said that there have, of course, been complicated situations when there have been four people who should have been rewarded, and then this becomes very difficult. And the way science is moving, I guess most people agree that more research is done in large groups, which might make this rule more and more complicated to stick to.

Do you think that the three-person statute should change?
This is a general answer, because I haven’t really discussed this and it’s not primarily on my table, it’s primarily on the table of the prize-awarding institutions. But there are certain things that Nobel wrote that one has accepted to give up. For example, he wrote that the prizes should actually be given to those who during the preceding year had made achievements that would bring the greatest benefit to mankind. But for a very long time prizes have been awarded to people for research carried out 10 or 20 years ago. So I do not think that we should rule out re-interpretations over time, but as far as I’m aware I don’t think this has been on the table systematically in the prize-awarding institutions.

I should add that the Peace prize has frequently been given to organisations, so this might be one way of dealing with things. If, for example, you have a group working at Cern on something, you could give Cern a prize, I assume. 

You mention Cern - there is much discussion about there being more than three contributors to the Higgs-like boson studies, if it were to be considered for a prize. Is this the issue that would make you reassess the rule?
I can’t really comment, because I don’t really know how those discussions have been going with the prize-awarding committees. But I would assume that if it becomes more and more obvious that this is a problem within the scientific community, then I assume that the prize-awarding institutions will find some solution over time.

Let’s say the scientific community decides this is a problem, how can a change be made?
I have not looked at the legality of this, but I would assume that in practical terms it would have to do with the open debate that goes on within the scientific community. And if the arguments are strong enough for rethinking some of these things then I think that this process will start. But I believe the arguments for not giving a prize to many people, which have been in place since the beginning, are still relevant. So it’s a matter of weighting these aspects against each other.

This year, no women were awarded a prize in any area – the 75th time in the history of the Nobel prizes that this has happened. What message do you think this sends out to the next generation of female scientists?
It’s an unfortunate message. In the sciences there has been domination by men for a long, long time. And many of these people who get the prize are fairly old people. However, if you look a scientists now who are in their 30s or 40s, then as I understand it in my country the women make up certainly not the majority, but at least a higher share. So I would be extremely surprised and disappointed if we do not see the number of women increasing over time. Then I think one would have to ask some serious questions.

What about the prize-awarding committees? Will we see better female representation at that level?
Yes, absolutely. There, I have the same belief. With more female professors at Karolinska, for instance, we will also see more female professors in the [Medicine] prize-awarding committee. This is what I expect.

This year you announced you were cutting costs because of the current economic climate. What led to that decision?
When you take an average of the last 10 years, it’s been a very bumpy road, up and down a lot, but on average over the last 10 years we’ve seen a 1.5-2% return on investment while at the same time our spending rate has been around 3.5%. That obviously doesn’t match, so we felt we had to do something about that. We could have gone on for many decades with the same kind of results without depleting any capital, but it’s better to act in good time than wait.

So we’ve done certain things on the investment side: we have an investment committee on which we have drawn very good people; we’ve tried to have a more distinct process there; and we are now reviewing all our assets. We also looked at our spending side, and we decided to cut the prize amounts by 20%. In dollar terms they are still historically very high, because the Swedish kroner has been going up in the last 10 years. It has also meant cutting costs on some of the festivities. We’ve not done anything that affects quality, more we negotiated on the contracts.

How has this affected funding you give to the institutions charged with selecting the prizes?
We decided to cut the grants to the prize-awarding institutions by 10%, not 20% as elsewhere. That’s a cut that we think is sustainable, we still think they can do as good a job as they have done before. Them doing a good job in a competent way is the most important thing for us.

How have you changed the way you are investing Alfred Nobel’s money in order to increase returns?
What we’ve done so far is to create a new investment committee, drawing in some of the best people available in the country. Some of them have been involved before, but perhaps having a more formalised process will help us make clearer who is responsible for what. It might sound a bit organisational, but I think it can be a fairly important aspect. We’re also developing a system of benchmarks, which I hope will help put pressure on ourselves. We had some 40 or so investment alternatives, and we felt this is more than we should have, so we’ve tried to go down to 25 or so, which makes it easier for us to grasp what goes on in our portfolio, and perhaps through this we can become more efficient.

When it comes to the actual investments we are evaluating each of them; and the consequence has been that we have moved some money out of some of the basic funds and into index funds. At the same time we’re looking at the possibility of having more money in hedge funds, where the return is higher relative to the risk than it has been historically in equity markets. If this is going to work well we need to have the capacity to choose effectively between hedge funds, and to do that we’ve been drawn to some extent on our good name, in finding people who can help us with that in the US and other places.

Aren’t hedge funds a high risk to take with Alfred Nobel’s money?
The foundation has taken very high risks before, during the 1980s for example, where we had a lot of money in property in Stockholm. That turned to be very successful, but I doubt that given the way the world works today that we would dare to have a strategy as risky as that. These days we will continue to spread things more broadly then we did in those days. And in the 1990s, we had a very high share in equities, which also turned out to be fine, but was also fairly risky a strategy. I think to some extent the not-so-good results during the last 10 years have been other side of the coin with respect to these investments. But it’s difficult to image that one could have been so clear-sighted at the time to move rapidly out of that.

So I am not implying in any way that we should be more risky than we have been before. But we could get a better risk-return ratio with hedge funds, as long as we are sure those hedge funds are well managed.

When do you think you will get back to the returns you made before?
What we are trying to do now is to get our cost ratio down to 3%; that means we will have to aim for 3% real rate growth. Under reasonably normal circumstances that should certainly be possible, but who knows?

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