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- Investor Focus
The perpetual search for diversified sources of return is pushing Nordic pension and insurance funds into ‘quirky’ territory.
PKA, for example, has allocated more than €120m to an unlisted company that recycles old car tyres, AP Pension now invests 2 per cent of its assets, or €80m, in timber and – according to the results of our latest quarterly investor survey (see page 14) – more than 30 per cent of Nordic investors want to follow suit.
Not only did our survey find that a third of funds plan to increase their exposure to hedge funds over the next six months and that 54 per cent want to raise their private equity holdings – it also found that more than 30 per cent of investors want an exposure to wood.
But why buy trees? The key attraction, according to a report published by Watson Wyatt last year, is because it is a ‘real’ asset with returns uncorrelated to equities and bonds. There is also a chance that active management can produce superior numbers, while timber may offer some respite during equity bear markets.
It is not particularly new to the Danes, however. Pension funds in Denmark have been investing in Danish forests for some time, Søren Andersen, CEO of Danish consultant Invensure, told the magazine (see page 25): “Not every pension fund has been investing in forestry but quite a few have,” he says. “My guess is that we will see an increase in non-domestic investments going forward.”
But it should come as no surprise to see investors turning to the quirky; funds seem to have given up hope on mainstream equities. Our quarterly survey, for example, found that investors expect US stocks to turn in a paltry 1.6 per cent over the next six months with Japanese stocks coming out little better at 2.1 per cent. Asian and emerging market equities, meanwhile, usually the preserve of fairly bullish forecasts, drew in predictions of just 2.5 per cent.
Reason enough for any pension fund to look elsewhere. The question is whether or not quirky is the right place. Alf Guldberg, head of Sweden’s pension fund association, thinks not: “Today there are plenty of interesting investment alternatives but also plenty of room for mistakes. My concern is that there has not always been sufficient information about risk levels and that perhaps investors are not always aware of the risks they are taking.”
Chris Newlands, editor
