Issue 1, 2017

The Nordic Fund Selection Journal issue from February/March 2017 covers a wide range of topics affecting Nordic institutional investors, responsible investing, portfolio innovation, and the outlook for political risks. Key themes include AP4's new CEO Niklas Ekvall’s emphasis on strategic long-term investments and sustainability, with the fund reviewing its portfolio structures and sustainable approaches amidst a low-carbon focus. In Finland, pension funds Varma and Ilmarinen have accelerated their climate change policies with concrete carbon reduction targets, signaling a broader move towards integrating climate risks into investment decisions. Additionally, challenges in asset management fees are highlighted, with calls for regular tenders and benchmarking to reduce costs, reflecting investors’ heightened scrutiny on fees amid lower returns.

The report also addresses structural changes in Icelandic pension funds as capital controls ease, allowing increased foreign investments for diversification previously limited by restrictions. Danish pension funds show a partial comeback to the Principles for Responsible Investment (PRI), following governance reforms at the organization, though some remain skeptical. Portfolio construction is evolving to address challenges posed by low bond yields and narrow diversification benefits, with investors exploring risk-allocation approaches and innovative strategies emphasizing alternatives as foundational elements. Political risks, notably from elections and global uncertainties including the US and UK, dominate Nordic investors' thinking, impacting tactical asset allocation and active management demand. Finally, gender balance and corporate governance are crucial active ownership themes this year, with investors advocating for more women on boards, limits on board members’ multiple roles, and transparent director elections.

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Table of content

Introduction and Industry Overview

Overview of Kames Capital’s legacy in responsible investing, the landscape of Nordic pension and fund management, and regulatory changes affecting the Nordic financial sector including the Swedish Financial Supervisory Authority’s traffic light stress testing and the evolving regulatory environment across Sweden and Norway.

Leadership and Strategic Portfolio Changes

Interview with AP4 CEO Niklas Ekvall discussing his early initiatives including portfolio structure review, strategic allocations, sustainability focus, and a more hands-on investment approach without appointing a chief investment officer.

Climate Change and Sustainable Investment Trends in Finland

Varma and Ilmarinen’s adoption of climate change policies with carbon reduction targets and how Finnish pensions are accelerating climate risk integration in investment decisions, amidst growing industry awareness and international commitments.

Cost Management and Institutional Investor Strategies

Analysis of asset management fees in Nordic pension funds by Bfinance, emphasizing the importance of periodic tenders, fee benchmarking, and hard negotiation tactics particularly by Danish investors to optimize management costs.

Icelandic Pension Funds and Capital Controls

Impact of the gradual dismantling of capital controls on Icelandic pension funds, enabling increased foreign allocations, and the strategic preparation by local asset managers for expanded overseas investments.

Resumption of PRI Membership Among Danish Pension Funds

Explanation of the Danish asset owners’ 2013 exit and subsequent partial return to the UN-backed Principles for Responsible Investment following governance improvements and transparency enhancements within PRI.

Investment Outcomes and Manager Performance Review

Insights from Denmark’s Lærernes Pension CIO Morten Malle on 2016’s strong returns, key asset class contributions, active management performance, and strategic focus areas for 2017.

Sustainable Development Goals (SDGs) and Investment Alignment

Exploration of Swedish AP2 and Dutch APG efforts to map investments to the UN Sustainable Development Goals, challenges in measurement and reporting, and emerging investment opportunities targeting SDGs.

Alecta’s Investment Philosophy and Sustainability Integration

Interview with Alecta CIO Per Frennberg discussing its focus on active management over passive indexing, low internal costs, selective sustainable investing, cautious active ownership, and ongoing adjustments to real estate and fixed income strategies.

Portfolio Innovation Amid Market Changes

Discussion of evolving portfolio construction approaches, questioning traditional diversification and fixed income roles, advocating risk factor-based and outcome-oriented strategies, and highlighting innovative models like Danica Pension’s house-structured portfolios.

Nordic Political Risks and Investor Outlook

Summary of key Nordic investor concerns in 2017 including interest rates and heightened political risks, trends in increasing tactical allocations, renewed demand for emerging market equities, and flexible investment strategies.

Lessons From 2016 Elections: Political Risk Management

Analysis of investor approaches to the UK Brexit referendum and US election, emphasizing defensive risk management, tactical positioning, and the challenges of predicting political outcomes and associated market reactions.

Investor Focus: Nordic Pension Fund Profiles and Strategies

Profiles and reflections from Nordic institutional investors including Denmark’s Nordea Liv & Pension, ATP, Danica Pension, and consultancy Wassum focusing on active vs passive management, alternative strategies, risk-factor allocations, and evolving priorities.

Active Ownership and Corporate Governance Priorities

Key governance themes in Swedish and Nordic annual general meetings such as gender diversity on boards, limitations on directors’ cross-appointments, transparency in remuneration, and NBIM’s engagement for improved governance practices.

Corporate Hospitality Policies and Ethics

Investigation of Danish pension funds’ policies on gift and hospitality acceptance from asset managers, demonstrating a varied landscape from zero tolerance to defined monetary limits, balancing ethical standards with relationship management.

Special Feature: Nordic Industry Personalities and Book Recommendations

Profiles of leading Nordic fund selectors, including Karolina Qvarnström Hutter-Rehrl at Länsförsäkringar, and curated book recommendations from KLP’s Annie Bersagel touching on shareholder activism, gender diversity, corporate governance, and stoic philosophy.

Publishing Details and Industry Events

Information about Nordic Fund Selection Journal’s publisher, editorial team, subscription details, upcoming industry roundtables, Nordic Fund Selection Forum and Awards events, and the publication schedule for 2017.