You made losses of -13.4 per cent last year, which was one of the weakest results out of all Swedish life insurance companies. Are you disappointed?

It depends on how you calculate, but our returns were definitely below average. I guess that you could say that we were punished for having more risk in our portfolio than our competitors. We have a very good solvency level and that has allowed us to take more risk, while many of our competitors have not been able to do that. We did reduce risk over the year, but as the risk premium went up, we were punished for all kinds of risk. We will have to wait and see if the strategy that we’ve opted for will give us good returns in the long run. Of course, you can’t be satisfied when you lose 13 per cent over one year, but I think we have a robust portfolio that will bring good returns over time.

You joined Skandia about two years ago. Are you happy with the current strategy?

When I started the job, we began by looking at where we want to take the portfolio in five years’ time. Currently, we have 50 per cent invested in fixed income, 30 per cent in equities, 10 per cent in property and the rest in alternatives. We need a large fixed income portfolio to match our liabilities, but are trying to diversify and add to our alternative assets. By investing in different kinds of more specialised asset classes, you can increase the expected risk-adjusted returns. We want to increase the share of illiquid assets, such as private equity and infrastructure. If there’s anything that a pension company can handle, it is illiquidity and the premium from that is currently very high.

Many would disagree and say that you should invest in liquid assets.

That depends on how much you allocate. The problem for many investors, in particular US endowment funds, is that when the value of all assets goes down, you have to start selling off the liquid assets and get stuck with only illiquid assets. But for a portfolio like ours, which has 80 per cent in equities and bonds – liquid assets – I can increase the share of illiquid assets without encountering this kind of problem. I would be happy if we built up our illiquid assets from 20 per cent to 30 per cent of assets.

Private equity is expected to have a tough year. Are you not concerned about increasing your private equity investments?

It would have been worrying if we had started investing a few years ago, but if you start during a crisis, it normally turns out to be a good investment. Our aim is to increase private equity from 3 per cent to 10 per cent and we are gradually escalating the pace of investments. I think investments made in 2009/2010 will pull in very good returns. Primarily, it’s about choosing the right managers. We are trying to select a few managers that we think are doing a good job. We have a globally well-diversified portfolio and are only investing a small part in the domestic market.

We are also planning to increase commodities with about 0.5 per cent and infrastructure and the portfolio of senior bank debt to 2 per cent of assets respectively.

Why is senior bank debt interesting?

We’ve identified a mismatch between supply and demand as so many banks are looking to get their loans off the balance sheets. Generally, we want to get more exposure to the credit market and this is one of the safest ways. We will start out by increasing our investments from 0.7 per cent to 2 per cent of assets and will gradually increase the exposure as soon as we find good managers to invest with. So far, we have only invested in the US, but are hoping to bring this to Europe and that similar structures will be set up here.

Is that not a risky investment?

When you’re paying 65 cents per dollar, you can handle pretty significant credit losses and still get good returns. It could, of course, prove risky if the credit crisis should worsen, but the awfully good returns still make it a good investment. During the first two months of the year, the portfolio returned 11 per cent. We’re not the only ones out there who believe that buying bank loans is a good business, although it may not be that common in Sweden. We’re investing at the expense of hedge funds and have so far divested from three funds of hedge funds.

Printer friendly version

Email this article to a friend