Ole Christian Bech-Moen, Norwegian Oil Fund
The oil fund's return in 2017 was 13.7%, twice as high as the year before. What were the main reasons for you doing so well last year?
One out of four kroner return was generated in 2017, after a very strong year for the fund. Our equity investments returned strongest with close to 20 percent return. The fund’s cumulative return since inception has passed 4,000 billion kroner.
The total value of the fund exceeded $ 1,000 billion last year - does the size come with any particular challenges?
We seek to use the fund’s unique combination of characteristics to our competitive advantage. We are a large, global investor with a long investment horizon and limited liquidity needs. We hold a well-diversified portfolio. Important challenges are to seek the right allocation across markets, the best currency composition and the interest rate exposure of the fixed income portfolio. Some investment strategies do not have the necessary capacity to be relevant for the Fund.
Can you say something about how you think the fund’s allocation will change over time?
We invest according to our management mandate set by the Ministry of Finance. We advise the Ministry, but they as the owner make the decisions on asset classes. We are just now implementing the Ministry’s decision to increase the equity share to 70 percent in the strategic benchmark. The ministry is currently assessing to open up for unlisted equity investments and infrastructure.
Ominder Dhillon, Global Head Institutional, M&G
What's the biggest trend in Alternative credits among the institutional investors right now? What's the drivers?
Growth in investments in private assets and direct lending has without a doubt been the biggest trend over the past five years. This has been driven partly by the low interest rate / low yield environment following the global financial crisis and because of quantitative easing measures. It is because of this, investors have been encouraged to look at more illiquid and private assets to source attractive returns. Regulation has also been a driver. For example, under the Solvency II regulations for insurance companies, various forms of unlisted and private assets benefit from fairly attractive capital treatment. This, together with the illiquidity and complexity premium these assets can offer, has meant that it has been logical for insurers to invest more capital in this area. At the same time, new regulation in the banking sector has also made banks less willing to hold such assets.
On top of all this, a further driver has been a greater realisation that perhaps the best providers of long-term capital for assets that provide an overall benefit for society – such as infrastructure projects and impact assets – are pension schemes and insurers given their long-term investment horizon, rather than banks.
Finally, the development of environmental, social and governance (ESG) investment and socially responsible investment (SRI) is a very clear and important trend. Increasingly we are moving – and have moved – on from the idea that the best or only way to invest in a socially responsible way is to exclude companies or assets that don’t meet certain criteria. In addition to this approach, we see growing interest in ‘impact Investing’, where investors can commit capital to projects that have a measurable and positive impact on society and which are in sync with the UN Sustainable Development Goals. This is an area that M&G is extremely committed to for the long term, and which we believe will become a fundamental and core part of the broader investment community’s processes, rather than a niche area for a small number of specialised investors.
Have you noticed any regional differences?
It’s sometimes easy to fall into traditional generalisations when discussing differences across the Nordic region. However, a couple of observations can be made. Sweden has, to some extent, been less active within private debt and direct lending, mainly because of the investment restrictions that are placed on some of its biggest institutions, the AP Pension Funds. These restrictions may, however, be changing in the not-too-distant future. On the other hand, Sweden and Norway, seem to have been at the forefront of ESG investing within the region. Denmark continues to have most interest in more complex structured credit opportunities, which probably reflects a greater focus on fixed income compared to perhaps more of an equity focus in Sweden. In Finland, hedge funds appear to have retained their popularity compared to other Nordic countries. Infrastructure investments remain a focus across the region.
Mikko Mursula, Illmarinen
The start of the year has been quite volatile. What's your expectations on the market going forward?
We expect volatility to stay at the higher level, in almost all the asset classes.. Moves at the interest rate level will be one of the most contributing factor into that.
How will this affect the strategy of Ilmarinen?
We will stay intact with our long term investment plan.
What is your take on active/passive managed funds?
Higher volatility and perhaps lower correlation should mean better operating environment for active strategies.
Staffan Hansen, SPP
SPP levererade bra till era kunder förra året, i snitt 11.1%. Vad berodde de fina siffrorna på?
Ja, SPPs kunder som har Sparande med garanti kan sammanfatta även 2017 som ett bra pensionsår. Avkastningen för en typkund i arbetslivet landade på 11,1 procent och för en typkund som nått pensionsålder på 6,5 procent. Portföljen levererade över hela linjen. Aktier, med tillväxtmarknader i spetsen, samt våra fastigheter gav de största positiva bidragen till den starka avkastningen.
Hur tror du att 2018 kommer att bli, avkastningsmässigt?
Det finns en del skogstroll som kommer att skrämma marknaderna från och till under året – såsom oro för stigande räntor samt politisk oro i form av exempelvis utspel om handelskrig. Jag ser ingen inflationsbrasa vid horisonten, och politiken präglas av en allt vassare tonalitet men med svag genomförandekraft. Vi kommer säkert se större svängningar än vi vant oss vid på marknaderna, men jag tror att aktiemarknaden stänger på plus och att långräntorna inte rör sig nämnvärt uppåt.
Vilka tillgångsslag kommer att gå bäst?
Jag tror fortsatt starkt på valda delar av fastighetsmarknaden – såsom hyresbostäder, bra belägna hotell och kontor samt samhällsfastigheter med långa hyreskontrakt. På aktiemarknaden föredrar jag en global portfölj möjligen med lite undervikt i USA. På räntemarknaden kan investeringar i onoterade kommersiella lån samt bolån ge ett hyfsat avkastningstillskott till portföljen.