Welcome to the fourth edition of Nordic Region Pensions & Investment News, Financial Times Business’ dedicated publication for the pension and investment industries in the Nordic countries.

Velkommen til den fjerde udgave af Nordic Region Pensions & Investment News, Financial Times Business’ særlige publikation for pensions- og investeringsbrancherne i de nordiske lande.

I denne udgave ser vi på de nye markeder og spidsartiklen undersøger den stigende interesse, som nordiske investorer har i både de nye obligations- og aktiemarkeder. I vor første pensions- og livsforsikringsfondsundersøgelse (se side 14), som omfattede syv fonds med E27,5 mia. aktiver under styring, viste svarene faktisk, at investorer mener, at obligationer fra de nye markeder vil blive de mest attraktive af alle aktivklasser med fast indtægt over de næste seks måneder. Investorer forventer også, at aktier fra Asien (ekskl. Japan) vil give afkast på 10 pct. inden marts næste år, sammenlignet med prognoser på blot 5,8 pct. for aktier fra USA.

Tervetuloa lukemaan Financial Times Business –yhtiön Pohjoismaiden eläke- ja sijoitustoimialoille suunnatun ammattilaisjulkaisun neljättä numeroa.

Pääartikkelimme käsittelee pohjoismaisten sijoittajien kasvavaa mielenkiintoa kehittyvien markkinoiden joukkolainoja ja osakkeita kohtaan.

Ensimmäisen eläke- ja henkivakuutusrahastotutkimuksemme vastaukset (ks. s. 14) osoittavat, että sijoittajat uskovat kehittyvien markkinoiden olevan vetovoimaisimpia kaikista fixed income –sijoituksista seuraavan kuuden kuukauden aikana. Tutkimukseemme otti osaa seitsemän rahastoa, jotka hallitsevat varoja yhteensä 27.5 miljardin euron arvosta.

Velkommen til 4. utgave av Nordic Region Pensions & Investment News (Pensjons- og investeringsnyheter for nordisk region), publikasjonen fra Financial Times Business som er tilegnet pensjons- og investeringsindustrien i nordiske land.

I denne utgaven tar vi en kikk på nye markeder som gjør sin entré og vår lederartikkel undersøker den økende interessen nordiske investorer tar i både obligasjoner og egenkapital som dukker opp på markedet. Faktum er at i vår aller første undersøkelse av pensjons- og livsforsikringsfond (se side 14) som inkluderte syv fond med en forvaltet formue på 27,5 milliarder euro, viser undersøkelsen at investorene tror at obligasjonsmarkeder som dukker opp vil bli de mest aktive av alle klasser aktiva med fast inntekt over de neste seks månedene. Investorer forventer også at asiatisk egenkapital (unntatt Japan) kommer til å gi en kapitalforrentning på 10 prosent innen mars neste år, sammenlignet med prognoser på kun 5,8 prosent for US dollar-obligasjoner.

Välkommen till fjärde upplagan av Nordic Region Pensions & Investment News, Financial Times Business specialpublikation för de nordiska ländernas pensions- och investeringsbrancher.

I denna utgåvan tittar vi på tillväxtmarknaderna och vår specialartikel behandlar det ökande intresset hos nordiska placerare för både obligationer och aktier på dessa marknader. I den första undersökning vi hittills gjort om pensions- och livförsäkringsfonder (se sidan 14) visar svaren att investerarna bedömer att obligationer på tillväxtmarknaderna under de närmaste sex månaderna kommer att bli de mest attraktiva av samtliga tillgångsklasser med fast ränta. Investerarna tror också att asiatiska aktier (exklusive Japan) kommer att ge en avkastning på 10 procent fram till mars nästa år, jämfört med prognoser på endast 5,8 procent för amerikanska aktier.

Norway’s financial services supervisor, Kredittilsynet, is consulting on its proposals to lower the minimum interest rate for new pension premiums from 3 per cent to 2.75 or 2.5 per cent. Interested parties are asked to make submissions by 4 November.

The proposals would cover assets relating to new life insurance and collective pension premiums from 1 January next year.

In a letter to umbrella organisations and industrial bodies dated 20 September, Kredittilsynet said: “It is in the perspective of solvency that we are obliged to the highest level of interest rates for insurance and pension companies.

Finland’s Post Group is to transfer the management of its supplementary pension cover to E1.1bn Pohjola Life and its statutory employee pension cover to E19.2bn Ilmarinen. The liabilities of the Post Pension Fund total E462m. Aker Finnyards Pension Fund is to also dissolve its E150m pension fund and transfer the management of its pensions to Varma. Completion of both transfers is expected to take place at the end of 2005.

Britannic Asset Management (BAM) has extended its coverage of the Scandinavian markets with a joint fund launch in association with a Swedish bank.

BAM has launched a Japanese equity segregated mandate with Robur, a wholly-owned fund manager subsidiary of Swedbank, known as FöreningsSparbanken in Sweden. The new fund will be managed at Britannic by Natasha Chetwynd, the head of Japanese equities.

Several Finland-based international companies are considering plans to shift the regulatory domicile of their pension funds to other EU countries.

Jouko Bergius, managing director at the Association of Pension Foundations (ESY), told nrpn that such plans were prompted by the failure of the ministry of social affairs and health to introduce defined-contribution (DC) schemes when implementing the pan-European occupational pension fund directive.

Iceland’s 12th-ranked pension fund, the Lifeyrissjodur Sudurlands, has entered merger talks with the Westurlands, Lifeyrissjodur nrpn has learned.

A fund manager associated with the talks said that the merger negotiations are ‘progressing well’. He added that neither party has yet committed to an outcome.

In the event of the merger talks succeeding, the new fund will likely be Iceland’s eighth or ninth largest fund by asset portfolio, with approximately $498m assets under management.

AP7, the SKr53bn (E5.6bn) seventh Swedish pension fund, is planning to introduce

alpha-beta separation in its internal equity mandate.

Richard Gröttheim, CIO at the fund, told nrpn that AP7 is currently waiting for the board of the fund to decide on the matter.

PP Pension, the Stockholm-based SKr7bn (E750m) fund for journalists, has made its first investments in Russian equities.

Tomas Lindstrand, CIO at the fund, told nrpn that PP Pension started investing in Russian equities a month ago during a thorough reorganisation of its emerging market investments.

“When we reorganised all our emerging market assets into four different portfolios, we also placed funds into an Eastern European fund, a large part of which consists of Russian equities,” he said.

AP4 has axed State Street as its global custodian and replaced the US-house with Northern Trust.

Agneta Wilhelmson Kåremar, director of administration at AP4, said: “Working with Thomas Murray, the custody advisers, we conducted an extensive review of global custodians and local banks in the market and believe we have found a long term partner in Northern Trust. It has depth and quality of service and, we believe, will be able to help us meet our objectives of enhanced operational efficiency across our entire global portfolio.” The move put an end to a long-running relationship between AP4 and State Street.

Several Nordic pension funds are considering diversification by cutting down on hedge funds of funds and adding single managers to their portfolios.

Tim Sweeting, managing director and head of sales for Europe and the Middle East at Deutsche Asset Management, told nrpn that funds which currently invest in approximately 10 funds of funds (FoF) might reduce the FoFs to three or five and add in single managers.

“Motivation behind this strategy is to reduce the number of managers in the overall portfolio. The funds are looking to employ a core satellite approach,” said Mr Sweeting.

The results of nrpn’s first-ever pension and insurance fund survey, which took in seven investors with E27.5bn-worth of assets under management, found that Nordic life and pension funds intend to cut into bond allocations and increase their holdings in equities over the next six months.

Four of the seven respondents said they plan to reduce their fixed income exposure, while three investors intend to allocate more of their assets to equities and private equity before March next year. Two investors also said that they intend to increase their exposure to real estate with one investor planning to up its allocation to hedge funds.

Recommendations to reform legislation covering work pension insurance companies have sparked a heated debate on the ownership of pension insurance assets in Finland.

Earlier this autumn Matti Louekoski, a director at the Bank of Finland, submitted a report to the ministry of social affairs and health recommending reforms in the legislation on work pension insurance companies.

One of the proposed reforms was to increase the representation of employers and labour market organisations on the boards of pension companies. Mr Louekoski also proposed that the managing directors of pension insurance companies should not be allowed to become members of the board.

Carnegie Finland has appointed Timo Penttilä as managing director, asset management. Mr Penttilä joins Carnegie from Evli where he was head of institutional asset management. Carnegie has also appointed Lauri Rosendahl as head of securities. Mr Rosendahl joins from Alfred Berg ABN Amro, where he was managing director of the company’s Finnish operation.

Nordea Investment Management has appointed Peter Bundgaard as head of Danish equities. Mr Bundgaard joins Nordea from SEB Asset Management, where he was responsible for Danish equities.

Chris Newlands examines the top performing pension and insurance funds in Denmark, following the publication of an extensive study. The report finds that investors have increased their exposure to to foreign currency bonds and reduced Danish equity exposure – a tactic that has proved costly for some investors

Norway’s Banklovkommisjon (Banking Commission) undertook a formidable task when it produced its 338 report on occupational pensions reform in just five weeks this year, with a total of only four meetings.

Leading the task was the chairman of the commission, Erling Selvig, in co-operation with representatives of the three largest Norwegian life insurers, the trade union confederation (LO) and the NHO industry confederation.

Kari Karason, managing director of the [600m Lifeyrissjodur Nordurlands, typifies Iceland’s overseas-educated fund manager elite. Heeding the warning of a slowdown – if not a crash landing – following the country’s recent growth spurt, Mr Karason has started diversifying his assets into familiar public stocks and less familiar alternative asset classes. He recently appointed international fixed-income, global and private equity managers but declined to name them.

The board of governors of Iceland’s central bank raised the bank’s policy interest rate by 75 basis points to 10.25 per cent, effective from 4 October. The development brings total increases in the bank’s policy rate to 4.95 percentage points since May 2004.

Explaining the development, Ingimundur Fridriksson, assistant governor of the Central Bank of Iceland, said the move was intended “to show [the bank] really means business and intends to use its only tool to bring the inflation rate to the target of 2.5 per cent.”

As the deadline looms for the latest Swedish traffic light system, pension providers are placing it under increasing scrutiny, claiming that its rigid interpretation of risk actually heightens investment dangers. Reeta Cevik investigates

 The traffic light system is a tool designed to make sure that life insurance companies and pension funds manage their investment risk when they follow the prudent person principle, set out in the pan-European occupational pension fund directive.

nrpn’s first survey of pension and insurance funds reveals a focus towards equities, private equity and real estate as well as a preference for Asia (excluding Japan) stocks over US equities. Chris Newlands reports

New investment regulations for Finnish pensions

Kari Puro has no doubt that investment regulations need to be looked at in detail. "As regards statutory pension insurance, the nearly 10-year-old idea is still valid: solvency requirements depend on the allocation of investments and the risks the portfolio contains. This is also the way forward in EU-wide solvency considerations. Nevertheless, the details [of the regulations] are out-dated and in urgent need of modernisation,” he says

Matti Leppälä of TELA agrees that the current regulatory regime is outdated. He believes that two factors limit the investment activity of Finnish pension insurance companies. "First, we have very detailed solvency rules, which have not kept pace with the development of the investment market. These rules are based on asset class classification, which does not necessarily portray the real risks of the investments," he says. "Secondly, separate technical provisions on assets covering liabilities restrict investments unnecessarily and they are inconsistent with the solvency rules."

nrpn asked leading figures to comment on the prosposed reforms

The current low interest rate environment is prompting many Nordic investors to increase their exposure to emerging market bonds. But, while funds in Norway and Finland are dragging their heels, investors in Denmark and Sweden are doubling their allocations to the sector. Chris Newlands investigates

While pension and life insurance funds in the Nordic region look to increase their allocation to emerging market debt, data from capital markets research firm Dealogic shows that emerging market bond issuance rose to E29bn in July – an increase of almost E3bn on the same time in 2004.

The wealth of opportunities offered in the burgeoning emerging markets equities arena are obvious to many investors. However, will the under-resourced smaller companies be able to find the latest openings and avoid potential pitfalls? Reeta Cevik investigates

The wealth of opportunities offered in the burgeoning emerging markets equities arena are obvious to many investors. However, will the under-resourced smaller companies be able to find the latest openings and avoid potential pitfalls? Reeta Cevik investigates

Corporate governance, political risk, corruption and a dominance of oil have made investors cautious about the Russian market. However, managers are confident that the future is bright for the country, writes Reeta Cevik

If the 40 per cent plus returns of many emerging markets indices look impressive, closer inspection of specific countries shows some amazing form. However, some asset management firms still remain cautiously optimistic, writes Chris Newlands

nrpn examines the consequences of the EU directive 2003/41/EC on the activities and supervision of institutions of occupational retirement provision for Finland, Denmark and Sweden, where the industry has largely welcomed the proposals. We also examine the future ramifications of implementation in Iceland and Norway

The European Economic area countries, including Iceland and Norway, have yet to implement the EU IORP directive. When they do, their inclusion within the regulatory scope of the directive will create new potential pan-European domiciles. Funds based in these countries will also be candidates to shift their operations to other jurisdictions.

After scaling down its international expansion plans four years ago, Storebrand Investments has shifted its focus to an investment strategy that separates alpha from beta in an attempt to optimise the risk-structuring of its portfolio.

Liam Kennedy spoke with Hans Aasnaes, Storebrand Investments’ new CEO

The decision to make changes has been ratified by the board. The search for new managers (if required) is underway. The transition manager has been appointed. What should happen from here to ensure a smooth and cost effective transition? Each of the following steps (though not necessarily always in this order) should form part of the transition manager’s process.

Nordic investors are pioneering diversification of their portfolios with some of the highest allocations in Europe. However, is the tendency to invest domestically affecting the returns they could get overseas? Stephen Oxley, managing director at PAAMCO reports

China’s decision to revalue the renminbi suggests it is at last responding to the challenge of transitioning the economy to a more mature phase. But the initial step is too tentative and is unlikely to pacify the revaluationists, writes Ruchir Sharma at Morgan Stanley

As pension schemes look to re-assess their asset mix in the face of uncertain returns in developed markets, emerging markets are increasingly being viewed as a lucrative source of returns, both now and in the future, writes Devan Kaloo, head of global emerging markets at Aberdeen Asset Management

Laurens Swinkels, of Robeco Quantitive Strategies, and Petra Segal, from the Robeco Center of Knowledge, demonstrate the impact of a changing Dutch regulatory environment and suggest investment solutions for the Swedish pension fund and life insurance industry

Anthony Biddulph, senior relationship manager for the Nordic countries at Merrill Lynch Investment Managers, clarifies the definition of enhanced indexation and outlines the benefits of this type of investment strategy which include lower fees, lower transaction costs and the reduced risk of underperformance compared to traditional active products

The efficiency of US markets has meant that many European pension funds are reticent about using active managers. However, the advent of portable alpha has changed the way that institutions view the market, finds Hugo Greenhalgh

The $4,500bn US small- and mid-cap market is far from small fry, but are there market inefficiencies to be exploited, and is it still an excellent source of excess returns away from the predictable large-cap space? The tech sector’s recovery from the ‘dotbomb’ debacle is also generating a lot of excitement and offers another valuable investment opportunity. Hugo Greenhalgh reports