Almost two-thirds of Nordic pension funds plan to raise their exposure to private equity over the next six months and half of them plan to increase their infrastructure allocations, according to the results of nrpn’s latest quarterly investor survey. None of the 14 Nordic pension funds polled, which have more than €125bn of assets under management, plan to reduce their private equity, hedge fund or infrastructure holdings.

“Going forward a year we will probably have between two and four infrastructure funds,” says Jan Ostergaard, CIO at Invensure. “It is not our intention to invest directly in infrastructure; we will follow the strategy we have used for both traditional private equity and real estate, investing indirectly via funds.”

Risto Autio, director of private equity at Varma Mutual Pension Insurance in Finland, adds: “We have committed €300m to infrastructure-type funds but that’s not fully invested. In three years’ time that commitment will be fully invested but we are making new commitments all the time. We can take as much exposure as we find rational so long as we can find good funds with a good investment strategy.”

But investors’ enthusiasm for hedge funds has increased the most. Almost 43 per cent of respondents intend to increase their exposure to the asset class over the next six months compared to 27 per cent last time. Private equity also saw a sharp rise with interest up from 50 to 64.3 per cent.

At the same time, fewer funds are planning to increase their exposure to property before year-end although 35.7 per cent of respondents intend to raise their real estate holdings going forward. One investor plans to reduce its property exposure, however.

Although alternatives were high on the agenda for investors, interest in equities remains strong. Six of the 14 polled investors said that they plan to increase their equity allocations over the next six months and only one respondent plans to reduce it.

Major investment region

Niall Gallagher, lead portfolio manager at T Rowe Price, says: “Investors looking to increase their equity exposure should consider an allocation to Europe, one of the major investment regions, given that its weighting in global markets is considerable.

“There is a compelling case for investment, including a favourable macroeconomic backdrop for the region as GDP growth improves, while structural change continues to act as a significant driver of stock prices. In comparison with their US peers, companies still have potential to expand margins and realise shareholder value.”

Investors, however, were most pessimistic about European and US equities. Three quarters believe US equities will only turn in 2.5 per cent over the next six months while European stocks are expected to garner 3.2 per cent. Almost 60 per cent of investors believe Asian (excluding Japan) equities will return between 5 and 10 per cent. Japanese stocks are expected to turn in 4 per cent.

Although half of the respondents intend to reduce their bond allocations and more than 35 per cent plan to leave them unchanged, interest in emerging market bonds has more than doubled since the last survey. More than 61 per cent plan to increase their emerging market bond holdings over the next six months.

“While we expect to see more periods of volatility for the remainder of the year, possibly over the next month or two, three main issues make us positive on the asset class: investors continue to look for returns above cash and government bond levels, the slowing US economy should support US and European bonds and the main themes in emerging markets remain positive," explains Alia Yousuf, emerging market debt portfolio manager, at Standard Asset Management.

Out of the 14 polled investors two-thirds believe world growth prospects will be positive. The remainder believe world growth prospects will be neutral.

INVESTORS CHANGE THEIR TUNE AND FORECAST RISING OIL PRICES

Three out of four investors expect oil prices to stay above $65 a barrel by the end of the year, according to nrpn’s latest quarterly investor survey. In our last survey not one respondent expected oil prices to exceed $65.

The survey, which took in responses from 14 Nordic pension and insurance funds with more than €125bn in assets under management, found that 50 per cent of investors expect oil prices to settle in the $65 to $74 range with more than 14 per cent expecting it to move above $75. At the same time, 21.4 per cent of investors expect prices to settle in the $55 to $64 range and not one investor believes oil prices will fall below $35.

More than 60 per cent of investors also believe that the European Central Bank (ECB) will increase interest rates over the next six months. Nearly a quarter think the ECB will increase rates one and 15 per cent think it will raise rates three times.

Almost 80 per cent of investors do not believe the Federal Reserve will increase interest rates at all over the next six months while 14 per cent believe the Fed will increase them once.

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