Explaining the background to the merger, Tryggve Tryggvason, head of asset management, at Gildi told nrpn: “In our opinion, there are too many funds in Iceland. We merged for economies of scale, the diversification factor, and to build up a strong in-house asset management team. We have taken a much broader view of our membership composition with this merger.”

Mr Tryggvason added that the merger would benefit the fund’s bargaining position in the event that it extends its investment portfolio into overseas asset classes: “I’m sure it will not be worse. It will add to the strength of our operation,” he explained.

Gildi’s asset management team will now focus on reviewing the fund’s investment strategy and its outsourced fund manager roster: “The two funds had very similar strategies, around 60 per cent in domestic bonds, 20 per cent in domestic equities and 20 per cent in foreign assets. There is still a lot of work to do on the foreign asset side by going through and choosing the managers. We have to build a sensible portfolio abroad,” added Mr Tryggvason.

Mr Tryggvason refused to be drawn on whether Gildi’s post-merger rationalisation exercise will see the fund cull any or all of its foreign asset managers: “It is too early to say,” he said.

And although he declined detailed comment on any future investment strategy, it is likely that overseas alternative asset classes will figure prominently: “Again, it is too early for me to say, but we have some work to do on a strategy within the next month. I would expect us to maybe go more into bonds, real estate and new asset classes in the long term. But I am not sure about whether we will increase on the equity side. The main thing for us is diversification.”

Commenting on the formation of the Gildi fund, Hrafn Magnusson, director general of Iceland’s National Association of Pension Funds, told nrpn that the Framsyn/Sjomanna merger is a significant development for the country’s pensions industry: “Gildi is important because this is the first merger to take place between two major Icelandic pension funds,” he said.

He explained that the development forms part of what is now a growing trend: “In the last five to seven years, many funds have merged, but they have been smaller funds,” he said. “So if you take the ten largest funds, they now hold 70 per cent of total pension fund assets. We expect this to increase to 80 per cent by the end of 2006. Many other pension funds are planning to merge.

According to data supplied by the FME, Iceland’s financial regulatory authority, nrpn has learned that three sets of merger negotiations remain ongoing between Sudurnes and Sudurland – two regional pension funds – the Almenni and Laekna funds, and the Lifidn and Samvinnu funds (see nrpn Spring 2005).

In addition, a fourth set of merger talks between the pension fund for commerce – Lifeyrissjodur Verzlunarmanna, Iceland’s number two fund – and the United pension fund – Sameinadi Lifeyrissjodurinn, ranked number five – remain on track.

Upon conclusion of the proposed Verzlunarmanna/Sameinadi tie-up, which is slated to complete by the year end, the new fund will become Iceland’s largest fund by assets under management, replacing the fund for state employees – Lifeyrissjodur Starfsmanna – to head the country’s fund ranking. SB

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