Issue 5, 2019

Nordic institutional investors face evolving challenges and opportunities across various asset classes and ESG integration efforts, with key themes centering on private markets, climate commitments, regulatory scrutiny, and evolving investment strategies. The shift from public to private ownership has intensified Nordic pension funds’ allocations to alternatives such as private equity and infrastructure, driven partly by low interest rates and a shrinking universe of listed companies. However, intensified Danish regulatory oversight highlights concerns about governance, risk monitoring, and valuation processes in unlisted asset investments, underscoring the importance of pension funds’ competencies in managing these risks. Nordic investors are increasingly active in sustainable investing, exemplified by their leadership role in the UN-backed Net-Zero Asset Owner Alliance and impactful engagement on issues like Amazon rainforest deforestation, revealing a strong commitment to aligning portfolios with long-term climate goals and responsible corporate practices.

Within private equity, seasoned Nordic investors have adjusted strategies to navigate challenges posed by high valuations, competitive fundraising, and manager selection complexities, emphasizing direct investments and co-investments with top-performing smaller funds over traditional fund-of-funds approaches. Academic research and market experience suggest that persistence in private equity outperformance has diminished, prompting a shift toward avoiding underperforming funds rather than solely identifying winners. Meanwhile, liquid alternatives providers advocate for tempered return expectations and transparency around fees and risks, suggesting limited illiquidity premium benefits and valuable smoothing effects in private market investments. Concurrently, Nordic fixed income investors are deepening ESG integration efforts, balancing the distinct risk-return profiles of bonds with regulatory developments such as EU taxonomy, engaging actively with issuers, and refining manager due diligence to address data variability and materiality challenges. Collectively, these developments reflect a sophisticated and evolving Nordic investment landscape, where long-term value creation, risk management, and sustainable impact remain at the forefront of institutional investor priorities.

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Table of content

Editor’s Comment and Market Themes

Discussion of shrinking number of listed companies transforming investment strategies, increasing Nordic institutional investors’ allocations to alternative assets, especially private equity. Concerns raised around regulatory scrutiny, risks, and competencies in private market investments.

Asset Owners Unveil Ambitious Climate Change Action

Formation of the UN-convened Net-Zero Asset Owner Alliance led by Nordic pension funds including PensionDanmark and Folksam, committing to decarbonize portfolios and take responsibility in alignment with the Paris Agreement. Focus on measurable impacts, engagement, and intermediate targets.

News Analysis: Nordic PRI in Person Conference Insights

Nordic investor reflections on PRI conference highlighting climate change as key ESG challenge. Topics include sustainable global food systems, biodiversity importance, EU taxonomy and regulatory impact, climate scenario stress testing. Increased focus on deforestation and gender equality planned.

Institutional Investor Collaboration Around Alternatives: PKA Case

PKA’s restructuring and rebranding of its alternatives platform Institutional Investment Partners Denmark, opening for co-investment opportunities with other institutional investors. Emphasis on economies of scale, sourcing efficiency, direct versus fund investments, and expanding venture capital allocations.

Intensifying Danish Regulation on Alternative Assets

Growing Danish FSA scrutiny on pension funds’ competencies, governance, and risk assessment regarding alternatives, especially unlisted assets. Pension funds increasing internal resources for valuation and risk monitoring. Regulatory emphasis on prudent person principle and fit-for-purpose governance remains a challenge.

Balancing Risk Oversight and Practicality in Unlisted Fund Investments

Ongoing Danish regulatory debates on pension funds’ required degree of independent risk assessment of underlying assets in externally managed funds. Industry caution about feasibility of extensive look-through mandates. Focus on finding proportional and practical compliance approaches.

Amazon Deforestation Sparks Nordic Investors’ Engagement

KLP leads call to action mobilizing Nordic investors against the Amazon fires caused by deforestation. Engagement strategies target companies with ties to agriculture products linked to forest destruction. Collaborative investor statements support corporate responsibility while recognizing geopolitical and supply chain complexities.

Nordic Investor Focus: Oslo Pensjonsforsikring’s New Investment Leadership

Interview with CIO Lars Haram discussing portfolio review, strategic process, increasing illiquid allocations, risk oversight, and climate risk management. Insights into team structure, market environment challenges, and pension fund priorities in Norway.

Roundtable Discussion: ESG Integration in Fixed Income

Prominent Nordic institutional investors and managers exchange views on the maturity, importance, challenges, and opportunities of ESG integration within fixed income portfolios. Themes include downside risk protection, manager selection, engagement with issuers, data quality, regulatory impact, and increasing investor demands.

Private Equity Strategies and Lessons Learned

Experienced Nordic private equity investors discuss strategy evolution including move away from mega funds, diversification, manager selection challenges in light of reduced persistence, fee structures, co-investments, and geographic diversification. Emphasis on long-term relationships and portfolio construction.

AQR’s View on Private Equity Returns and Illiquidity Premium

Research indicating lower future returns and diminished persistence in private equity performance relative to public equities, especially after 2006. Discussion of smoothing effects on returns, fee structure impact, and implications for investor expectations. Call for demystification and alignment of private asset return expectations.

BlackRock’s Innovative Long-Term Private Capital Strategy

Introduction of BlackRock’s evergreen private capital strategy aimed at long-term institutional investors seeking liquidity and alignment beyond conventional private equity fund cycle constraints. Features include fee transparency, lower leverage, focus on high-quality companies, and potential diversification benefits.

Up-Close and Personal: Interview with AP2’s Head of Manager Selection Patrik Jonsson

Insights on career path, key challenges in manager selection, importance of facing and learning from mistakes, AP2’s evolving mandate, and climate risk considerations. Emphasizes importance of relationships, transparency, and balancing ambition with resource constraints.