Issue 4, 2017

The Nordic investment landscape is experiencing notable shifts driven by strategic consolidations, evolving sustainable investing approaches, and emerging market opportunities. Key developments include the merger of Finnish pension companies Ilmarinen and Etera, creating a pension powerhouse positioned to challenge incumbents by leveraging combined assets and expertise. Meanwhile, Nordic investors are increasingly integrating Environmental, Social, and Governance (ESG) criteria into investment decisions, emphasizing governance as a leading indicator and advocating for more transparency and true integration rather than surface-level screening or exclusion. Asset managers are also navigating complexities in ESG data, striving to provide clearer insights amid varied methodologies and standards.

China’s growing economic significance is prompting Nordic investors to reconsider exposure to Chinese equity markets, especially A-shares, despite challenges related to market transparency, volatility, and governance concerns. Early movers like Finland’s Ilmarinen and Swedish AP2 highlight the long-term strategic importance of Chinese investments and stress the need for local expertise and active management to mitigate risks. Concurrently, discussions on the modernization of Swedish AP funds highlight the push for increased investment flexibility, allowing more illiquid assets while addressing sustainability mandates amid cautious but optimistic fund manager perspectives. Across the region, institutional investors show heightened interest in private markets and real assets, while risk management and downside protection have gained prominence as markets face stretched valuations reminiscent of 2007.

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Table of content

Introduction and Industry Overview

This issue covers significant movements and trends in the Nordic pension and asset management sectors, including mergers, strategic shifts, and sustainability initiatives. It highlights key industry developments such as the Finnish pension company merger, Nordic investor perspectives on ESG integration, and evolving strategies in private equity and fixed income investments.

Merger of Finnish Pension Companies Ilmarinen and Etera

Ilmarinen and Etera are joining forces to create a new pension powerhouse nearly rivaling Varma as Finland’s largest pension insurance company. The merger is aimed at modernizing services and benefiting from economies of scale, though uncertainty remains regarding investment team integration and organizational changes.

Nordic Perspectives on Corporate Tax and Responsible Investment

The Danish pension fund PBU has introduced a new corporate tax policy aimed at excluding non-compliant companies and encouraging responsible tax behaviour. While this initiative has been met with mixed reactions from other Danish pension players, it highlights ongoing efforts toward socially responsible investing in the region.

Private Equity Trends and Challenges in the Nordics

Swedish private equity specialist AP6 is undergoing a deliberate portfolio revamp with a focus on selective, international investments. Despite strong investor appetite for private equity, rising capital inflows have led to heightened competition and persistent high fee structures, prompting investors to seek cost-efficient strategies such as co-investments.

Storebrand’s Innovation in Sustainable Development Goal (SDG) Integration

Norwegian Storebrand Asset Management is pioneering a proprietary SDG scoring system to align investment decision-making with sustainable development objectives. This innovative approach aims to quantify financial risks and opportunities related to the SDGs for approximately 2500 companies, providing actionable insights for portfolio managers.

Investment Strategies and Risk Management in Nordic Pension Funds

The report discusses contemporary portfolio strategies, including increasing allocations to illiquid assets, active management of risk premiums, and adopting ESG considerations. Noteworthy is AP7’s strategy evolution featuring reduced leverage and enhanced green investments, reflecting broader market concerns on stretched valuations and downside protection.

Chinese A-shares Market: Opportunities and Risks

Exploration of the Chinese equities market, particularly A-shares, addresses investor hesitations due to governance, transparency, volatility, and regulatory issues. Nordic pension funds like AP2 and Ilmarinen are cautiously engaging in this market, recognizing its strategic importance despite challenges. The impending inclusion of A-shares in MSCI emerging market indices is expected to increase focus on China’s capital markets.

Importance of ESG Integration in Manager Selection

Panel discussions reveal a strong Nordic consensus on integrating ESG factors into investment processes beyond mere exclusions, emphasizing transparency, genuine engagement, and the need for passion in asset management. There is an ongoing call for better standards, data quality, and meaningful measurements aligned with client values and long-term impacts.

Investor Insight: Addressing Market Volatility and Diversification

Concerns resembling pre-financial crisis conditions have intensified focus on downside risk management and portfolio diversification among Nordic investors. Increased allocations to private markets, emerging markets, and real assets are prevalent, though access to truly uncorrelated assets remains challenging. Asset owners and managers are adapting strategies to mitigate potential market corrections.

Up-close with Nordic CIOs and Strategic Leaders

Interviews with investment heads like Pontus Bergekrans (SEB) and Samu Anttila (LocalTapiola) provide personal insights into managing large portfolios, governance of cross-border teams, balancing traditional and alternative asset classes, and navigating market complexities with a focus on innovation and sustainability.

Industry Outlook and Upcoming Events

The issue concludes with previews of upcoming roundtable discussions on fixed income and emerging markets, the Nordic Fund Selection Awards, and an editorial focus on liquid alternatives. It outlines plans to continue providing in-depth coverage of evolving asset management topics relevant to Nordic professional investors.