Issue 1, 2023

The February-March 2023 issue of Nordic Fund Selection Journal provides in-depth coverage of key developments and trends among Nordic institutional investors. A major theme is the reassessment and often reduction of emerging market exposures by Swedish asset owners, driven by ESG concerns, geopolitical risks such as the Russia-Ukraine conflict, and disappointing historical returns. Notably, large investors like Länsförsäkringar Liv, AP3, and AFA Försäkring have exited or significantly scaled down their emerging market equity investments, opting instead for more selective approaches that emphasize governance standards. The magazine also highlights the departure of Mikael Angberg from the Swedish national pension fund AP1, reflecting on his contributions to implementing a total portfolio perspective and increasing internal asset management to enhance risk control and sustainability.

Other key topics include Sweden's extensive reform of its premium pension fund platform, which is moving to a public tender system for fund selection. The role of the new Swedish Fund Selection Agency is scrutinized, with industry voices cautioning that the process may favor larger global managers and questioning some procedural and transparency aspects. Meanwhile, Bluebay's CEO Erich Gerth discusses industry consolidation pressures driven by fee compression and rising costs stemming from regulation, ESG, and technology, emphasizing the critical importance of corporate culture. The journal also features an interview with Velliv’s CIO Anders Stensbøl Christiansen, who shares insights on Velliv's expanding internal investment capabilities, adoption of risk-based allocation frameworks, developments in sustainable impact investing, and strategic portfolio adjustments following the market turmoil of 2022.

Additionally, a roundtable of Swedish and European investors delves into asset allocation challenges amid economic and geopolitical uncertainties, reflecting on lessons from 2022’s market shocks. Participants underline the importance of diversification, risk budgeting, and cautious positioning in assets such as duration, credit, and emerging markets, while acknowledging the complexities posed by inflation, recession risks, and ESG integration. Finally, AFA Försäkring’s CIO Johan Held offers a nuanced view on the insurance company’s better-than-expected 2022 performance, highlighting the stabilizing effects of alternatives, real estate, and currency exposure, while expressing skepticism about emerging market debt and equity amid governance and return concerns. The issue portrays a Nordic investment landscape marked by cautious optimism, strategic recalibrations, and evolving approaches to sustainability and risk management in a shifting global context.

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Table of content

Mission completed as Mikael Angberg leaves AP1

After nine years as CIO of AP1, Mikael Angberg steps down having fulfilled his goals. His tenure involved building a world-class investment organisation, implementing a total portfolio perspective, dynamic asset allocation, and bringing more assets under internal management. He emphasizes the importance of reducing complexity, embracing long-term investing with flexibility, and rigorous decision-making especially in private markets and unlisted assets.

Fund procurements and the under-appreciated role of RFP writers

The Swedish Fund Selection Agency prepares for a major public tender of SEK 900 billion for the premium pension system reform. The process will replace fund listing with a rigorous tender, focusing on suitability, cost-efficiency, sustainability, and quality. Experienced leaders Majdi Chammas and Tina Rönnholm emphasize the holistic evaluation approach and encourage honest, thorough RFP submissions. The RFP writer role is critical but often unrecognized.

Potential challenges with a procured premium pension platform

The Swedish fund industry expresses concerns about the fund tendering process potentially favoring large global players, narrow fund categories limiting niche funds, and extensive administrative demands. There are worries about sudden fund deselection and non-transparent evaluation criteria. The Swedish Investment Fund Association calls for careful design to ensure fairness and has highlighted specific issues such as bonuses and securities lending in the evaluation. The industry remains skeptical about the reform’s benefits.

Bluebay’s CEO Erich Gerth: Merger risks and industry trends

Erich Gerth reflects on Bluebay’s evolution from an alternative origins to a single investment platform combining traditional and alternative fixed income. He discusses industry-wide challenges including fee compression, rising regulatory and ESG costs leading to consolidation pressures especially on mid-sized firms. The close merger with RBC was complementary with minimal integration risk. Maintaining culture and social cohesion, alongside flexibility with hybrid remote work, are key operational priorities moving forward.

Interview with Velliv’s CIO Anders Stensbøl Christiansen

Velliv has expanded its internal investment team and shifted toward managing critical asset classes internally while retaining external managers for alpha generation. The firm emphasizes risk-based portfolio construction for robustness and dynamic response, learning lessons from 2022’s universal losses by adding diversifiers like liquid alternatives. It launched its own Nordic-focused impact investment fund through a joint venture, aiming to lead sustainable investing in the region. Velliv also cautiously approaches EU sustainability classifications and plans to increase allocations to alternatives going forward.

Roundtable: Swedish Institutional Investors discuss asset allocation and outlook for 2023

Leading Swedish investors reflect on 2022’s surprises including inflation shocks, war in Ukraine, and market volatility. They emphasize risk management lessons such as holding dry powder and avoiding forced selling. Challenges include assessing duration exposure, navigating uncertain macro conditions, and balancing emerging markets’ strategic long-term opportunities with ESG and governance concerns. Views converge on increased allocation to alternatives, real assets, and the need for flexible, diversified portfolios given wide possible outcomes in 2023.

Emerging market allocation and ESG considerations

There is skepticism among Nordic investors on emerging market equities and debt due to underperformance and governance risks, particularly following geopolitical tensions. Active management and a tailored approach focusing on countries or sectors are preferred to blunt beta exposures concentrated in China or other specific geographies. Balancing the ESG imperative to support transition with avoiding exclusions that might reduce returns is a nuanced challenge requiring active ownership and fundamental analysis rather than simple ratings or classifications.

Better-than-expected 2022 at AFA Försäkring

Despite 2022’s challenges and negative public equity and bond returns, AFA Försäkring reports a better-than-expected outcome driven by reduced fixed income duration, alternative investments, real estate, and foreign currency exposure. The company maintains strong solvency after switching to IORP II regulation. Its cautious approach includes complete exit from emerging market equities citing ESG and return concerns. The office real estate portfolio expects moderate near-term valuation declines, with ongoing adaptations to new work culture dynamics crucial for information sharing and decision-making.