Issue 5, 2016

The October-November 2016 issue of the Nordic Fund Selection Journal provides an in-depth analysis and diverse perspectives on the evolving landscape of asset management in the Nordic region. A recurring theme is the pressing need to adapt traditional investment strategies to a low-return, volatile environment marked by ultra-low or negative interest rates. Influential Nordic pension funds such as ATP, Lægernes Pension, and Länsförsäkringar Liv illustrate the challenges and innovations in managing risk and returns, including cautious expansion into alternatives like real estate, private equity, and infrastructure. ATP’s CEO Carsten Stendevad reflects on transforming investment approaches toward pure risk factor models and highlights the importance of managing expectations amid uncertain markets, while Lægernes Pension focuses on modernisation with prudent collaboration and a gradual increase in alternatives exposure.

The Journal also explores the controversies and debates within fund management, including the role and impact of fund manager bonuses, the significance of ESG (Environmental, Social, and Governance) integration, and the relevance of active share metrics in assessing fund activeness, especially in credit markets. Engagement with ESG is increasingly prioritized, blending screening, integration, and active ownership to mitigate risks and identify opportunities without compromising returns. Meanwhile, investment managers stress the importance of combining quantitative data with qualitative insights to better integrate ESG into portfolio construction.

Additionally, the report touches on specific investment opportunities and challenges in diverse areas such as US small-cap equities—where the 2016 presidential election and liquidity concerns weigh on investor sentiment—and less mainstream real asset classes including shipping investments, viewed as underexplored yet offering diversification potential. Finally, the Journal highlights trends in Nordic pension fund consolidation, regulatory impacts like Mifid II’s operational demands, and strategic organisational changes within funds and asset management firms, underscoring the sector’s dynamic response to a complex global financial environment.

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Table of content

Interview with ATP’s CEO Carsten Stendevad

Reflecting on his tenure and resigning due to family reasons, Stendevad highlights ATP’s investment strategy overhaul to a risk factor approach, enhanced alternatives exposure and long-term active ownership. He stresses managing expectations in a low-return environment and maintaining the ability to adapt swiftly to change.

Fund Manager Bonus Risk – Swedish Fund Selectors’ Views

Discusses the varied stance among Swedish fund selectors on performance-based bonuses for fund managers, highlighting considerations about risk-taking incentives and alignment with investors’ interests.

Alecta’s Strategic Withdrawal from Foreign Direct Real Estate

Alecta sells UK and US direct real estate holdings due to operational risk concerns, focusing instead on domestic real estate and cautious future investments to maintain low asset management costs.

Implications of Mifid II on Asset Owners’ IT Infrastructure

Highlights the operational challenges and urgency for Nordic asset owners to adapt their IT systems for compliance with Mifid II, emphasizing transaction reporting and trade repository choices amid regulatory uncertainties.

Sampension’s Expansion and Integration Efforts

The Danish pension giant plans to acquire academic pension funds and compete for corporate schemes, aiming for economies of scale while managing risk and integrating investment portfolios efficiently under common administrative structures.

Factor Investing as Active Management

Explores the nature of factor-based strategies in equities and bonds, emphasizing that capturing factor premiums involves active decisions and cyclicality, requiring investors to maintain a long-term perspective and scrutinize portfolio construction.

ATP CEO Carsten Stendevad: Reflections and Future Challenges

Insights on ATP’s transition to a risk-factor investment model, cautious direct alternative investments, and internal reorganization. Discusses climate change integration, long-term ownership focus, staff departures, and his forthcoming career plans.

Swedish Premium Pension Reform and AP7’s Prospects

The proposed reform could double AP7’s assets by transferring passive pension savers to its default portfolio. AP7 is planning strategic shifts in equity diversification and leverage while evaluating the reform’s detailed effects on its investment approach.

Shipping Investments: Underexplored Real Asset Opportunities

Examines shipping as an alternative real asset for pension funds, discussing its differentiating risk-return profile, challenges of direct ownership, education gaps among investors, and environmental considerations.

The Role of Active Share in High Yield Credit Investing

Debates the applicability and limitations of active share as a measure of manager activeness and value-add in US high yield credit investing, contrasting it with tracking error and discussing perspectives from fund selectors and managers.

Slow Reentry into Alternatives for Länsförsäkringar Liv

Details the challenges for Länsförsäkringar Liv in managing legacy high-guarantee products amid low interest rates, its gradual rebuilding of alternative investments, and regulatory impacts including Solvency II implementation.

Modernization at Danish Doctors’ Pension Fund Lægernes Pension

New CEO Chresten Dengsøe leads organizational delegation, cautious collaborations with peer academic funds, growth in alternatives, and rebranding efforts aiming for better service and strategic positioning.

The Battle for Midfielders: Portfolio Construction and Investor Challenges

Discusses evolving investor portfolio strategies favoring diversified ‘midfield’ asset classes, challenges of accessing alternatives, liquidity constraints, and the importance of realistic risk-taking and active management in a shifting market environment.

US Small Caps: Navigating Presidential Election, Style, and Liquidity

Reviews US small cap market perspectives amid an uncertain election, contrasts growth vs value styles, notes liquidity challenges, and stresses the importance of manager capacity and long-term investment horizons.

Fund Selector Concerns About US Small Caps

Highlights selector concerns including capacity limits, performance volatility, peer group distortions, and recommends cautious inclusion of smaller or lesser-known managers given operational and liquidity constraints.

Profiles and Personalities in the Nordic Fund Industry

Features include an in-depth look at Icelandic pension fund CIO Arne Vagn Olsen and insight into professional transitions such as Nina Movin’s move to Danish pension foundation Otto Mønsted.

ESG Integration Roundtable in Oslo

Nordic investors and managers discuss definitions, approaches and challenges in ESG integration, highlighting themes such as engagement versus exclusion, data quality, active ownership, and the balance of ethical and financial goals.

Industry Updates and News Highlights

Coverage of Nordic asset management industry developments including recruitments, mergers and acquisitions, regulatory feedback, academic achievements, and emerging investment trends.

Upcoming Nordic Fund Selection Awards and Events

Information on nomination processes, event dates, methodology changes emphasizing ESG, and editorial staff updates supporting Nordic Fund Selection Journal’s mission to connect and inform the regional asset management community.