Issue 5, 2018

The 2018 Nordic Fund Selection Journal explores several emerging themes within institutional investment in the Nordic region, with a key focus on ESG integration and responsible investing. Danish pension funds such as MP Pension, P+, and Pensam have pioneered ESG manager ratings as a way to systematically assess and encourage ESG compliance among external managers. These ratings serve not only as compliance tools but also aim to foster constructive engagement and improvement. The process has revealed challenges around assessing ESG integration accurately, particularly in asset classes like illiquid credit, and highlighted the industry’s preference for quantitative guidance over broader evaluative criteria. The pursuit of greater ESG transparency is a response to both regulatory developments and ethical imperatives, reflected also in the spirited Nordic participation at the 2018 PRI in Person conference where investors exchanged insights on real-world impact, climate risks, and sustainable finance frameworks.

Complementing the ESG discussion, several institutional investors are grappling with portfolio construction, risk management, and alternative asset inclusion amid market volatility and low yields. The transformation of Velliv, formerly Nordea Liv & Pension in Denmark, illustrates the challenges and opportunities of reorganizing pension funds post-ownership changes, focusing on building a robust investment team and refining strategic asset allocation. Emerging market equities feature prominently with Nordic investors debating the merits of active versus passive management, the impact of politics and ESG factors, and challenges of diversification. Innovations in alternative investments are also showcased, with invoice investing gaining traction as an uncorrelated asset class delivering yield and diversification at the intersection of liquidity provision and credit risk assessment. Through interviews, roundtables, and multiple case studies, the journal captures investors’ evolving strategies to pursue long-term value by integrating ESG, leveraging new asset classes, and adapting governance frameworks within the Nordic investment landscape.

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Table of content

Investors Begin ESG Rating of External Managers

Danish pension funds are adopting ESG ratings for their external managers to ensure policy compliance and boost ESG integration. These ratings are used constructively to identify areas for improvement, influencing manager selection and engagement strategies while recognizing challenges in evaluating certain asset classes.

Velliv’s New Post-Nordea Strategy Takes Shape

Following its separation from Nordea, Velliv pension company is establishing a standalone investment team in Ballerup, Denmark, reorganizing its structure and tweaking investment strategies. The firm continues to outsource asset management while enhancing internal portfolio construction and ESG integration aligned with its new ownership and identity.

The View from Velliv’s New Owner

Velliv Foreningen, the customer association transitioning from Nordea ownership, becomes majority owner of Velliv pension company. It envisions a commercially viable, customer-owned company focusing on responsible ownership and member benefits through annual bonuses and charitable initiatives, supported by prudent financial management.

Norwegian Investors Discuss Strategies for Emerging Market Equities

A roundtable of Norwegian institutional investors and selectors discussed the challenges and opportunities in emerging market equities. Topics included the asset class’s diversification benefits, active vs. passive management, ESG integration adapted to emerging markets, the rising importance of China, political and macroeconomic risks, and evolving manager selection priorities.

Interview with Bjarne Graven Larsen

Bjarne Graven Larsen reflects on his leadership roles in pension funds, emphasizing the importance of clearly defining and managing compensated versus uncompensated risks in portfolio construction. He advocates unbundling risks, focusing on long-term objectives, cultivating active ownership, and maintaining liquidity to enable opportunistic investments amidst market downturns.

Invoices as a New Alternative Investment Opportunity

Invoice One offers an alternative investment vehicle focusing on buying discounted corporate invoices, primarily from small- and medium-sized enterprises needing liquidity. This relatively niche asset class aims to provide stable, uncorrelated returns for investors while supporting businesses’ cash flow, leveraging proprietary credit models and aiming for cautious, quality-focused growth.

From the World Bank to Sweden’s AP4: An Investment Strategist’s Perspective

Marcus Svedberg discusses his transition from advisory roles including the World Bank to AP4, a Swedish pension fund, where he combines emerging market expertise with sustainable investment priorities. His macro analysis incorporates traditional and new variables such as complex politics, diverging monetary policies, and sustainability, stressing adaptability and forward-looking economic assessment.

Managing Risk Premia and Conducting a Brass Band

Kari Vatanen of Finnish pension company Varma describes his quantitative, systematic approach to investment, focusing on risk premia and portfolio construction while navigating challenges of low expected returns and diminished diversification. Outside work, he pursues music as a brass band conductor and author on investing topics, combining analytical rigor with creative interests.