Issue 2, 2016

The Nordic asset management landscape is marked by ongoing strategic evolutions driven by shifting market dynamics and investor priorities. Notably, Danish pension fund PFA is revamping its approach by increasing internal management of equities—particularly European stocks—while aiming to significantly boost allocations to alternative investments like private equity, infrastructure, and private debt. New leadership under Chief Investment Officer Henrik Nøhr Poulsen emphasizes flexibility and building in-house expertise, mirroring broader industry trends of augmenting active management capabilities amidst low-return environments. Similarly, Realdania, a Danish investment association, has revised its strategy toward greater global diversification in equities and fixed income, complemented by increased commitments to real estate and alternatives, embracing a risk-management framework tailored for long-term, less regulated institutional investing.

Within this context, the debate between smart beta and active management gains prominence. Tryg’s senior vice president Kenneth Lillelund Winther advocates for "smart alpha," highlighting research showing active risk factor investing outperforms static smart beta strategies by approximately 1% annually after fees, underscoring the value of dynamic, manager-driven allocation over passive exposure to factors. This analysis challenges conventional notions that passive or smart beta approaches uniformly surpass active management. Additionally, fund selectors in the Nordic region increasingly integrate ESG considerations rigorously—using detailed questionnaires and ongoing engagement—to align with responsible investment goals, reflecting rising investor demand for sustainability. Emerging market equities remain a pivotal theme, with Nordic selectors favoring nuanced, region- and sector-specific approaches over broad index tracking due to varied fundamentals and governance challenges. Overall, Nordic asset owners and managers are adapting by deepening expertise, embracing active solutions, and emphasizing responsible and diversified investment strategies.

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Table of content

Capital and Financial Hub Competition in Scandinavia

Stockholm promotes itself as the “Capital of Scandinavia” and strives to become a top European financial hub by 2020, competing notably with Copenhagen. Danish investment ambitions face challenges due to tax legislation disadvantaging non-Danish investors. Attracting international staff and regional work trends influence Copenhagen’s position, but Stockholm is viewed as holding the upper hand.

Leadership Changes and Strategic Refocus at Swedish Pension Fund AP4

AP4 undergoes significant management changes with the CEO, deputy CEO, and chairman stepping down. Despite previous criticisms, the fund has transformed into Sweden’s largest, especially notable in sustainability and low-carbon investments. Internal challenges, such as real estate governance issues, and succession plans are addressed amid reflections on past investment opportunities.

Growth and Integration of Green Bonds in Nordic Portfolios

Swedish pension fund AP2 formally incorporates green bonds into its strategic portfolio, signaling market maturity. Other Nordic funds including AP3 and AP4 are increasing allocations to green and social bonds, reflecting growing environmental investment priorities, despite challenges in bond subcategories and regulatory shifts.

Gender Imbalance in Nordic Asset Owners

A Nordic-wide survey shows significant gender disparity, with 90% of CEOs/CIOs at the largest asset owners being men. Boards have improved gender balance, especially in Iceland due to legislation, but Denmark has the most skewed representation. The study highlights ongoing gender equality challenges contrasting asset owners’ public advocacy.

Brexit Concerns among Nordic Institutional Investors

Nordic investors increasingly view the UK referendum on EU membership as a major risk, anticipating market volatility and currency fluctuations. While some cautiously adjust strategies, Brexit is generally not the primary concern compared to factors like China and emergent markets. Hedging and tactical caution prevail in preparation efforts.

Interview with Danica Pension’s CIO Anders Svennesen: Innovating amid Low Returns and Short-Termism

Anders Svennesen discusses shifting from passive to active management due to market volatility and low yields, emphasizing tactical asset allocation and alternatives as portfolio foundations. He addresses challenges unique to commercial pension funds, including customer short-term focus and the need to educate savers on long-term investment outcomes.

Nordic Selectors’ Approaches to ESG Integration

Fund selectors increasingly integrate ESG considerations via questionnaires, manager engagement, and performance monitoring, balancing quantitative ratings like Morningstar’s new Sustainability Rating with comprehensive evaluations. Transparency and proactive ESG reporting remain key for differentiating and selecting asset managers.

Impact Investing: From Niche to Institutional Mainstream

Impact investing grows beyond charitable origins toward institutional adoption, emphasizing scalable solutions and measurable social/environmental outcomes. Definitions remain diverse, yet investors seek financial returns alongside purposeful impact across asset classes, including private equity, bonds, and community finance. Retail interest and product innovation are emerging.

Case Study: Dutch Pension Manager PGGM’s Impact Investment Strategy

PGGM adopts thematic, scalable impact investing aligned with institutional demands, focusing on climate change, water scarcity, food security, and healthcare. Flexibility and benchmarking are key to measuring impact across asset classes, emphasizing support over creation of impact and adhering to market-rate returns with transparent reporting.

Emerging Market Equities: Nordic Investor Roundtable Insights

Nordic fund selectors and managers discuss the complexity and regional nuances of emerging markets investing. Themes include the debate on emerging markets as an asset class versus region-specific strategies, integration of ESG factors, macroeconomic influences, manager selection challenges, and the appeal of specific markets like India and sectors such as financials and consumer goods.

Unconstrained Fixed Income: Opportunities and Selection Challenges

Unconstrained bond funds offer flexible alternatives amid low or negative traditional fixed income returns, but lack standard benchmarks complicating peer comparisons. Nordic selectors emphasize understanding risk management philosophies and strategy objectives. Managers highlight themes like European corporate credit, emerging markets, inflation risks, and effects of monetary policies.

Denmark’s PFA Pension: Equity Strategy and Alternatives Expansion

PFA is increasing internal management of equity portfolios, shifting external allocations to specialist strategies, and targeting growth of alternatives from 2% to 8–10% over five years across private equity, infrastructure, and private credit. Recruitment and building in-house team competencies are priorities amidst crowded markets.

Realdania’s Investment Strategy Update

Danish association Realdania revamps strategy to emphasize global equities and fixed income without domestic bias, and increase allocations to private equity, real estate, and other alternatives. The association enhances governance, risk management, and expands investment staff with a focus on long-term positions and flexibility.

Smart Alpha vs. Smart Beta: Insights from Tryg’s Research

Tryg’s research introduces “smart alpha” as actively managed risk premia strategies outperforming static smart beta funds by about 1% annually after costs in value, size, and low volatility factors. Advocates argue active risk factor management better exploits investment opportunities compared to passive factor exposures and traditional active management.

Lack of Employer Branding in Nordic Asset Management

Despite growing demand for talent and some gender diversity issues, few Nordic fund companies proactively promote themselves as employers. Industry experts highlight the importance of employer branding reflecting company culture, products, and values to attract and retain skilled professionals, particularly female investment talent.

TIAA Expands Nordic Presence Targeting Real Asset Investors

TIAA Global Asset Management pursues Nordic growth primarily through alternatives focused on real assets like real estate and infrastructure. New senior hires and plans for expanding Nordic staff support its strategy to meet rising institutional demand for alternatives and long-term partnerships.

SEB Manager Selection: Up-Close Personal Interview with Mikael Haglund

New head of manager research Mikael Haglund reflects on team rebuilding, fund selection priorities, market oversight, and personal interests. He emphasizes rigorous analysis, communication with managers, and sustainable approaches within SEB’s multi-billion euro external manager portfolio.

Publisher and Contact Information, Upcoming Issues and Events

Details on Nordic Fund Selection Journal’s editorial team, advertising partners, planned content themes (such as real estate and convertible bonds), and forthcoming industry events like the Nordic Fund Selection Forum and regional roundtables. Subscription and registration information for FBNW news platform included.