Pirgir Stefansson, LSR’s investment manager, explained that the fund’s investment policy, set last year, called for a 10 per cent allocation to alternatives. Currently, the fund’s allocation stands at just 1.2 per cent.

He said: “Our allocation to alternatives is much lower than we would hope for. Though we have committed a lot of money to private equity and real estate, the money has not yet been fully put to work. It takes a lot of time, because we don’t have a large staff that can work on this day and night looking at funds. We are taking a conservative route.”

The fund, which as the vehicle for public employees is ultimately backed by the government, outsources all its international exposure. Mr Steffanson said: “We have the ambition to be global in our investment, to diversify.” The fund nonetheless has a substantial allocation to the local currency fixed-income and domestic equity markets, since its liabilities are entirely local currency-denominated. The fund’s domestic bond allocation runs at 50 per cent, and between 15 and 20 per cent in domestic equities.

An in-house team manages the fund’s domestic exposure, while global fund management is handled via external funds and segregated mandates with foreign asset managers, of which the fund uses 14. The in-house team is also responsible for the currency overlay that hedges foreign exposure back into Icelandic krona.

Though the alternatives policy has been in place for a while, building up exposure has been a lengthy process. “While it is difficult finding good alternatives managers, there are a lot of managers out there, and we are quite conservative,” he said. “We have had a lot of phone calls, some useful, some not. It is going to take us a bit longer to reach our target.”

TE

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