Issue 4, 2021

The Nordic Fund Selection Journal #04, 2021 edition highlights key trends and challenges in the Nordic and global investment landscape. A major theme is the increasing focus on sustainability and climate change risks, exemplified by the Norwegian Government Pension Fund Global’s expert group recommendations to integrate climate objectives aligned with the Paris Agreement into its mandate. Nordic institutional investors, such as Sweden’s PRI Pensionsgaranti and the Finnish Church Pension Fund, are actively updating their climate strategies to reduce carbon exposure and increase green investments, with a strong emphasis on ESG integration and responsible ownership. Managers and selectors face challenges adapting to new EU regulations like SFDR, managing ESG complexities, and balancing sustainable investment leadership with portfolio returns.

The edition also addresses structural and regulatory shifts impacting fund companies in Sweden, such as commission bans and occupational pension transfer laws, which are pressing local firms to elevate the quality and competitiveness of their offerings. Nordic selectors report ESG considerations and due diligence difficulties, especially amid virtual engagement constraints, as significant selection challenges in 2021. Emerging market equity investing remains complex, with selectors emphasizing the importance of local knowledge, top-down analysis, and engagement in ESG matters. The diversification of portfolios across factors and regions, alongside carefully navigating geopolitical and systemic risks, emerges as a prudent approach. Interviews and roundtables underscore the evolving nature of sustainable investing, integration of alternatives, and the necessity for collaborative engagement to drive positive change.

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Table of content

Challenges to Fund Companies

Global fee compression, regulatory demands, commission bans, pension mobility laws, and increased ESG integration pressure Swedish fund companies to revamp fee structures, investment offerings, and manager selection processes for competitive advantage.

Procurement and Pension Mobility

Sweden’s premium pension and occupational pension system reforms enforce stringent quality standards and lower transfer costs, intensifying competition and driving fund companies to improve value, cost-effectiveness, and adaptability.

Adapting to the Changing Fund Industry Landscape

Successful fund companies will pivot from retrocession fee models to value creation through efficient manager oversight, streamlined hire-and-fire processes, and closer collaboration with global partners to ensure portfolio continuity and cost-efficiency.

Climate Change Risk at the Norwegian Oil Fund

The Norwegian Government Pension Fund Global should adopt a mandate aligned with the Paris Agreement, incorporate climate risk metrics, and lead in climate risk transparency and active ownership across all sectors, addressing broad financial impacts beyond oil.

ESG and Market Challenges for Nordic Investors

Emerging ESG regulations and complexities alongside due diligence constraints challenge Nordic fund selectors. US large-cap equities and hedge funds are particularly difficult areas for manager selection, with increasing focus on individual product ESG credentials.

DNB’s New Investment Specialist Unit

DNB consolidates strategic allocation, fund selection, and investment communications into a joint wealth management investment office, enhancing advisory capabilities across client segments with an emphasis on science-based sustainable investing.

Leadership Changes in the Finnish Pension Sector

Non-political CEO appointment at Keva signals shift towards experienced pension leadership amid sector reforms and competition. Parallel leadership changes at Elo and Veritas reflect ongoing pension industry transformation in Finland.

PRI Pensionsgaranti’s Green Transition and Portfolio Approach

Focus on managing green transition risks and opportunities with a diversified portfolio strategy. The pension fund adjusts allocations, reduces hedge fund exposure, employs portfolio insurance derivatives, and enters private equity with a sustainable investment lens.

Finnish Church Pension Fund Climate Strategy Update

New targets to eliminate carbon-intensive investments by 2035, increase green assets to 10%, and require fossil-free heating in real estate. The fund enhances ESG integration and manager engagement aligned with emerging sustainability standards and regulations.

Nordic Selector Roundtable: Emerging Market Equities

Discussion on the importance of ESG integration, local market knowledge, manager styles, currency hedging, political risk, and macroeconomic factors in EM equity selection. Emphasis on engagement, transparency, factor balancing, and adapting to pandemic effects and geopolitical drivers.

Interview with Grieg Investor’s Fredrik Wilander

Insights on asset allocation, factor exposures, ESG challenges, investment strategy reflections, and personal career background highlighting the importance of manager research and critical thinking in portfolio construction.