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Nordic Investors Point to Private Markets and Equity Exposure as Top Priorities

Eugeniu Guzun
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Nordic Investors Point to Private Markets and Equity Exposure as Top Priorities

Nuveen has published the results of its annual Global Institutional Investor Survey, revealing that 58 percent of the 40 surveyed Nordic investors plan to significantly boost their equity exposure in 2025, compared to just 23 percent in 2024. Additionally, there are intentions to allocate more capital to private markets, infrastructure, and notably, niche private credit investments.

The comprehensive survey includes responses from 800 institutional investors, including investment decision-makers, portfolio managers, and chief investment officers, across 29 countries, collectively managing up to $19 trillion in assets. The survey includes responses from 40 Nordic investors, who collectively manage $740 billion in assets. The Nordic segment of the survey reveals an increasing appeal of long-term and inflation-protected assets. Notably, 65 percent of Nordic investors plan to increase their allocation to private markets, 55 percent aim to invest more in private infrastructure, and 41 percent are seeking exposure to niche private credit investments.

According to Nuveen’s institutional investor uncertainty barometer among global respondents, market uncertainty has decreased from 69 last year to 63 this year. Approximately 80 percent of respondents cite higher volatility and geopolitical conflict as the primary drivers of this uncertainty. Additionally, 28 percent of global investors fear a global recession is likely in 2025. In contrast, 38 percent of Nordic respondents share this concern. When asked about the likelihood of macro events in 2025, 80 percent of Nordic investors anticipate increased market volatility, while 75 percent expect interest rate adjustments and rising geopolitical risk. The remaining respondents were either unsure (the second-highest response) or believe these events are unlikely (the lowest response).

“…Nordic institutional investors are showing a great level of resilience by responding to market uncertainties through diversification into private markets while exploring liquid opportunities…”Alex Hansen, Head of Nordics at Nuveen.

“We have entered a year where market volatility, interest rate fluctuations and geopolitical uncertainty remain present, Nordic institutional investors are showing a great level of resilience by responding to market uncertainties through diversification into private markets while exploring liquid opportunities – balancing risk mitigation with emerging opportunities,” says Alex Hansen, Head of Nordics at Nuveen.

With uncertainty levels declining when the survey was conducted in October and November 2024, investors were actively reallocating “risky assets.” The survey reveals that Nordic institutions are planning to increase their equity and credit exposure while reducing duration and cash allocations over the next 12 months. Specifically, 58 percent of Nordic investors intend to boost their equity exposure, a significant rise from 23 percent in 2024. Additionally, credit exposure is set to increase modestly, with 38 percent of respondents planning to allocate more to credit, up from 35 percent. In contrast, the proportion of respondents planning to increase duration exposure has fallen from 50 percent to 33 percent, while the percentage planning to increase cash exposure has dropped sharply from 30 percent to 15 percent.

The statistics also reveal Nordic investors’ growing interest in private market investments. According to the survey, 65 percent plan to increase allocations to private markets, 55 percent intend to boost their investments in private infrastructure, and 41 percent are expanding into niche private credit opportunities over the next five years. This trend signals the emergence of private markets as a key driver in shaping the future of portfolio construction in the region. Notably, Nordic investors recognize that expanding into private markets and alternative investments brings organizational benefits, such as enhanced investment expertise and a greater ability to stay ahead of emerging trends.

“The emerging asset allocation strategies amongst Nordic institutional investors reflect a proactive stance in optimising portfolio performance in search for higher returns amidst changing economic conditions” says Alex Hansen, Head of Nordics at Nuveen.

A Strategic Lever for Investors Seeking Exposure to Gold

Kamran Ghalitschi
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A Strategic Lever for Investors Seeking Exposure to Gold

The gold market has started 2025 with remarkable momentum, driven by a combination of economic and political turbulence. The return of Donald Trump to the U.S. presidency, ongoing inflation concerns, and central banks’ aggressive gold purchases have reinforced gold’s appeal as a safe-haven asset. In this environment, investors are evaluating whether to invest in physical gold or seek greater opportunities in gold companies.

As highlighted by Charlotte Peuron, a specialized fund manager at Crédit Mutuel Asset Management, gold’s strong upward trend from 2024 has continued into 2025, propelled by geopolitical uncertainties, trade tensions, and inflationary pressures. The announcement of Trump’s policy agenda and executive orders has heightened market uncertainties, prompting investors to turn to gold for stability. As a result, the metal reached a historic peak on February 24, 2025, when it hit an all-time high of $2,956.2 per ounce. Investor demand is surging, with growing interest in Gold ETFs and physical acquisitions. Additionally, China has introduced a pilot program allowing insurance companies to integrate gold into their long-term asset allocation strategies, further strengthening demand. Silver has also seen a strong rise, climbing 12.8% since the beginning of the year to $32.6 per ounce.

While gold’s rally is capturing attention, gold mining companies have outperformed the metal itself. The Nyse Arca Gold Miners index has risen by 22.3% compared to gold’s 10.8% increase as of March 7, 2025. This surge is largely attributed to the strong operational results of mining companies, which have demonstrated disciplined cost control and increasing production efficiency. Rising gold prices are enhancing profit margins, and valuations of many gold companies remain relatively low despite the sustained rally. Investor confidence is growing as companies release optimistic 2025 projections, and analysts are increasingly revising their earnings expectations upward. Significant capital inflows are also returning to gold stocks, as investors seek to benefit from the leverage these companies offer.

Gold has traditionally served as a hedge against economic downturns and market volatility, but investing in gold companies presents a compelling alternative with additional advantages. Unlike physical gold, mining companies benefit not only from rising gold prices but also from revenue and profit generation. Many gold companies maintain strong balance sheets, ensuring positive cash flows and effective cost management. As a result, they are well-positioned to reward shareholders through dividend payments and stock buybacks. Despite recent gains, these companies are still attractively valued, indicating further upside potential as the market adjusts to sustained high gold prices. The industry is also experiencing increased consolidation, with larger firms acquiring smaller players at attractive valuations, driving further growth and efficiency within the sector.

With gold prices reaching new highs and the global economic outlook remaining uncertain, gold remains an attractive investment. However, for those looking to optimize their allocation, gold companies offer an alternative opportunity. Their ability to capitalize on rising gold prices, combined with strong operational performance and shareholder-focused strategies, makes them a potentially superior investment compared to physical gold alone, writes Charlotte Peuron at Crédit Mutuel Asset Management, in a press release.

Picture: (c) jingming-pan—unsplash.com

Benchmark-Plus High-Yield Investing at LD Pensions

Master
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Benchmark-Plus High-Yield Investing at LD Pensions

Stockholm (HedgeNordic) – Danish pension fund LD Pensions manages two separate pension funds, each with different investment horizons. While the allocation across equities, investment-grade bonds, and credits varies between the two funds, a common feature is that high yield accounts for about half of the credit exposure. According to Michael Kjærbye-Thygesen, senior portfolio manager within fixed income and credit at LD Pensions, this is because high yield is one of the most liquid and transparent ways to achieve the desired credit exposure.

LD Pensions manages two funds, the Holiday Allowance Fund overseeing DKK 21 billion, and the Cost-of-Living Allowance Fund managing DKK 25 billion. “The oldest and most mature pension scheme, which has an estimated investment horizon of around ten years, requires a safer asset allocation,” explains Kjærbye-Thygesen. This fund, the Cost-of-Living Allowance Fund, allocates 78 percent to fixed income, including both high-grade securities and credit, with the remaining 22 percent in equities. In contrast, the younger Holiday Allowance Fund has an investment horizon beyond 20 years, allowing for a higher investment risk in the portfolio. This fund allocates 65 percent to equities, 25 percent to credit and 10 percent to the high-grade fixed-income segment.

The credit allocation “serves as a mediator between the higher risk associated with investing in equities and the safer yields from high-grade fixed-income investments,” explains Kjærbye-Thygesen. This credit universe includes high-yield bonds, loans, leveraged credit, and more illiquid credit such as private debt, and opportunistic credit strategies. Despite the varied and diversified nature of the credit spectrum, the fixed-income team at LD Pensions follows a benchmark approach for constructing its portfolio. Slightly over 50 percent of the benchmark is related to the global high-yield index, with the remaining portion related to loans.

“[The credit allocation] serves as a mediator between the higher risk associated with investing in equities and the safer yields from high-grade fixed-income investments.”Michael Kjærbye-Thygesen, senior portfolio manager within fixed income and credit at LD Pensions

The team can deviate from the benchmark exposure both in the short term and the long term, according to Michael Kjærbye-Thygesen. “Our allocation to more illiquid private debt and leveraged credit indicates a shift from our benchmark, which we expect to persist in the longer term,” he explains. Despite this flexibility, high-yield bonds hold the highest weight in the pension fund’s credit portfolio. “This is because high-yield bonds are much more liquid as an asset class and represent the most transparent way to gain the desired credit exposure,” says Kjærbye-Thygesen.

Benchmark-Weight to High-Yield Bonds

As explained by Kjærbye-Thygesen, high-yield bonds offer one of the most liquid credit exposures available, making them the easiest to allocate in and out of. “If we want or need to make tactical asset allocation changes, high-yield bonds are the most accessible option to implement those changes,” Kjærbye-Thygesen asserts. He emphasizes that tactical decisions cannot be implemented quickly with illiquid assets or loans, highlighting the importance of high yield in both tactical and strategic allocations.

However, determining the allocation to high yield involves assessing the “comparable spread and the issue’s position in the borrower’s capital structure.” High-yield bonds occupy the lower part of the capital structure, “and historically, in the event of a default, the losses have been much higher, and the recovery much lower compared to instruments higher in the pecking order.” For that reason, “it is crucial to consider the spread levels on high yield bonds versus other segments, and more importantly, to evaluate if the compensation is appropriate for the risk being undertaken.” This process entails evaluating recent trends in default rates, forecasting defaults, and estimating recovery rates.

“It is crucial to consider the spread levels on high yield bonds versus other segments, and more importantly, to evaluate if the compensation is appropriate for the risk being undertaken.”Michael Kjærbye-Thygesen, senior portfolio manager within fixed income and credit at LD Pensions

Kjærbye-Thygesen and his team currently maintain a neutral position on high yield compared to the overall benchmark, a stance partly influenced by the tighter spreads across markets. “Our perspective is that if spreads go lower, the compensation is not there to justify the risk,” explains the senior portfolio manager. Remaining neutral and maintaining a below-average exposure, Kjærbye-Thygesen adds that “we can remain below average for an extended period.” In a scenario of weakening macroeconomic developments and widening spreads, “our tactical allocation could change.” However, as things stand, “we maintain a neutral position given the level of spreads that we see.” 

Benchmark-Plus Approach to High-Yield Investing

LD Pensions exclusively invests in high-yield bonds through external managers. “We do not invest directly,” explains Kjærbye-Thygesen, “as we believe that managing a high-yield portfolio requires a much larger organization.” Investing directly in high yield “not only requires portfolio managers but also a large team of analysts,” he continues. Therefore, Kjærbye-Thygesen finds it challenging “to build an internal setup for managing high yield, even in a beta-oriented way.”

Kjærbye-Thygesen and his team employ a beta-plus approach to building their exposure to high-yield bonds, which revolves around a systematic high-yield strategy. “This is the core part of our exposure to high yield as we wanted to achieve the same return as the benchmark for the overall asset class,” explains Kjærbye-Thygesen. “It’s not pure beta, rather, it aims to deliver returns after costs on par with the benchmark.” This strategy follows the benchmark using a systematic approach but also allows for deviations, and the manager must demonstrate the ability to rebalance the portfolio in a way that costs do not hinder the attainment of benchmark returns.

“[We opted for a more prudent approach of building] a core allocation to a beta-plus systematic strategy and then selectively choosing active managers who have the flexibility to deviate from the benchmark more actively, thereby creating the alpha required on a smaller scale.”Michael Kjærbye-Thygesen, senior portfolio manager within fixed income and credit at LD Pensions

The rationale behind establishing its primary allocation in high yield through a systematic strategy stems from observations made by Kjærbye-Thygesen that “many high yield managers have struggled to consistently outperform their benchmarks over the past five, seven years.” Despite maintaining faith in active management, LD Pensions opted for a more prudent approach of building a “core allocation to a beta-plus systematic strategy and then selectively choosing active managers who have the flexibility to deviate from the benchmark more actively, thereby creating the alpha required on a smaller scale.”

Despite adopting a benchmark- and systematic-based approach to investing in high yield, Kjærbye-Thygesen still recognizes the value of active management. “We also believe in active management and invest with active managers,” says Kjærbye-Thygesen. The team has also explored the possibility of investing in passive instruments such as exchange-traded funds (ETFs). “We have been investing using ETFs in the past, but the problem is that the costs are still too high, and the beta may not necessarily mirror the benchmark,” explains Kjærbye-Thygesen. While ETFs serve well for short-term tactical allocations, they may not be ideal for longer-term investments. “For longer-term allocation, you need to have a manager in place who can execute trades at a very low-cost basis.”

LD Pensions also favors investing through segregated mandates rather than existing fund structures. This approach enables Kjærbye-Thygesen and his team to “have full transparency into existing investments and make our own exclusions.” Given that high-yield bonds are among the most liquid and transparent credit asset classes, Kjærbye-Thygesen’s team applies the same ESG process as for equities. “We evaluate various ESG factors such as CO2 emissions, worker rights, and controversial weapons,” he explains. “With segregated mandates, we can promptly react to any issues that arise.”

Even though credit spreads in many liquid segments do not adequately compensate for the risk, Kjærbye-Thygesen concludes by asserting that high-yield bonds are “an attractive asset class within the credit portfolio” due to their liquidity, transparency, and strong structure.

Veritas Rethinks Emerging Market Exposure: Shift to “Ex-China” Allocations

Eugeniu Guzun
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Veritas Rethinks Emerging Market Exposure: Shift to “Ex-China” Allocations

Emerging market investing has never been a one-size-fits-all approach, and China’s sheer size and role has only added to the complexity. As the world’s second-largest economy and a major part of emerging market (EM) indices, China presents both opportunities and challenges. Geopolitical tensions, regulatory shifts, and market access concerns have led some investors, including Finnish pension insurer Veritas, to rethink their approach. Rather than eliminating China exposure entirely, Veritas has embraced “Ex-China” allocations to gain broad EM exposure while maintaining flexibility to allocate to China separately.

The Case for a Separate China Allocation

As a proponent of active management in emerging market equities, Veritas had traditionally relied on fund managers employing an “all-markets” approach. However, starting last year, the team initiated a comprehensive overhaul of its EM portfolio, shifting half of its allocation to “Ex-China” emerging market managers while appointing dedicated China specialists for the remainder. “We saw the need for greater control over our China exposure,” explains Portfolio Manager Tapio Koivu, citing several factors behind the decision.

One key reason for the shift was the varying perspectives and approaches that “all-market” managers took toward China. “Each manager comes with distinct biases and views on China—some prefer to avoid it entirely, while others maintain more significant exposure,” explains Koivu. By separating emerging market allocations into dedicated China-focused and Ex-China mandates, Koivu and his team seek to achieve greater control and flexibility in managing their China exposure.

“We recognize that emerging markets are not a single, uniform story, but China stands apart in many ways, including its demographics. We saw the need for greater control over our China exposure.”

Another important factor behind the decision to separate China from the broader emerging markets allocation was the fundamental differences between China and other EM economies. “We recognize that emerging markets are not a single, uniform story, but China stands apart in many ways, including its demographics,” says Koivu. In many respects, China resembles a developed market, with a highly sophisticated economy, deep capital markets, and globally dominant industries. However, its political and regulatory environment remains distinct, with state intervention playing a far greater role than in traditional developed markets.

Addressing Geopolitical Risks and Opportunities

“Initially, the discussion focused on China’s sheer size – its weight alone justified a dedicated allocation,” Koivu explains. However, the unique political landscape and the broader implications of China’s relationship with the United States ultimately became the deciding factor in Veritas’ decision to separate its China and Ex-China emerging market exposures. “China holds a substantial weight in EM indices and remains a key driver of overall performance. If you simply follow the index, you’re inherently taking on substantial exposure,” Koivu notes.

The team at Veritas evaluated multiple scenarios, including more adverse outcomes where escalating geopolitical tensions could lead to China’s isolation. “In such a case, the impact on the emerging market allocation could be devastating,” argues Koivu. Rising tensions between China and the West – particularly with the U.S. – have already resulted in trade restrictions and fears of forced divestments. “For that specific downside scenario, it’s important to have the flexibility to manage and reduce exposure quickly,” Koivu emphasizes. “It’s not our base case, but it’s a risk we need to account for.”

“Having this flexibility is an advantage – it gives us an additional lever in our toolkit to fine-tune our exposure as market conditions evolve.”

The potential for a positive scenario also reinforced the decision to separate China from the broader EM exposure. “The opposite case is equally valid,” Koivu explains. “China is currently trading at very low valuations and, on a broader scale, appears somewhat out of favor. If conditions improve, it could present significant opportunities,” he continues. “In such a scenario, we would want the flexibility to quickly overweight China – even substantially.” Ultimately, multiple factors pointed to the same conclusion: having greater control over China’s allocation and treating it separately within the portfolio was the right approach.

This adjustment, however, comes with its own challenges. “It’s not an easy shift because it requires us to take a more active role in determining our stance on China versus the rest of emerging markets,” Koivu admits. “Previously, we could rely on managers to make those calls, without needing to worry too much.” However, he sees this increased involvement as a net positive. “Having this flexibility is an advantage – it gives us an additional lever in our toolkit to fine-tune our exposure as market conditions evolve.”

The Benefits of Active Management in Emerging Markets

Over the years, Veritas has developed a diverse and region-specific strategy for investing in global equities. The firm employs a direct, fundamental approach for Finnish equities, a quantitative strategy for European equities, a predominantly passive approach for U.S. markets, and primarily relying on external managers for emerging market equities. “This is where active management can truly add value, in our opinion, which is not the case all across the globe,” he emphasizes.

“In U.S. large-cap equities, a passive approach makes a lot of sense,” Koivu argues. “However, in emerging markets, the environment is still quite inefficient. Active managers can add significant value here, helping to avoid pitfalls related to companies with poor governance or weak ESG profiles.” For more tactical allocations in emerging markets, Veritas may also turn to passive ETFs. “While the active funds we rely on are mostly daily liquid and not illiquid in that sense, our philosophy is to avoid interfering with active managers through inflows and outflows,” Koivu notes. “For more tactical trades, we prefer instruments like ETFs that are better suited for that purpose.”

“However, in emerging markets, the environment is still quite inefficient. Active managers can add significant value here, helping to avoid pitfalls related to companies with poor governance or weak ESG profiles.”

When selecting managers for emerging market investments, Veritas primarily favors discretionary stock pickers who adopt a “boots on the ground” approach. “I wouldn’t say there’s only one right way to approach EM investments – there are multiple successful approaches,” Koivu notes. However, the majority of Veritas’ managers tend to have strong analytical skills and a hands-on mentality, actively meeting with companies to gain a deeper understanding of the drivers and risks. Ultimately, Veritas prioritizes managers who follow a well-defined process and have the resources to execute it consistently, ensuring that their success is repeatable and not just the result of luck.

Emerging Markets as an Element of Portfolio Diversification

Veritas maintains a broad and diversified portfolio, with emerging markets being a natural component due to their place in the global economy. Koivu highlights that the allocation to emerging market equities is valuable for diversification, as many of the drivers in these markets differ from those in developed markets. While the past decade has been challenging for emerging markets in aggregate, Koivu remains optimistic. “In the long term, the underlying drivers are still there, and the region offers a diverse mix of countries and companies,” he notes. With a more active approach, he believes there are significant opportunities, even during periods of market uncertainty. “Before this prolonged downturn, emerging markets experienced a significant boom, and there’s no reason why that couldn’t happen again in the future.”

Norselab Ventures Into Real Estate High Yield

Eugeniu Guzun
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Norselab Ventures Into Real Estate High Yield

Amid promising opportunities within the Nordic real estate market, Norwegian investment house Norselab is launching a high-yield fund structured as an alternative investment fund to invest in Nordic real estate. Norselab Real Estate Credit Opportunities, set to debut on November 20, marks the second credit fund under the Norselab Group umbrella.

“Nordic real estate is under tough pressure. With high inflation, rising interest rates, and poor macro factors, now is excellent timing for high-yield credit,” says Tom Hestnes, Managing Director of Norselab’s credit arm. Hestnes will co-manage the fund alongside senior portfolio manager Ole Einar Stokstad, formerly Head of Credit Research at DNB Markets for over 15 years. 

“Nordic real estate is under tough pressure. With high inflation, rising interest rates, and poor macro factors, now is excellent timing for high-yield credit.”

The upcoming launch comes a year after Norselab launched its first credit-focused fund dedicated to impact investing, Norselab Meaninful Impact High Yield. For the new real estate credit fund, Hestnes and his team are combining their credit expertise with the sector-specific know-how of real estate entities K2A and Compactor. “We will pool knowledge, networks, analysis, and execution to enhance our decision-making,” says Hestnes.

Structured as an alternative investment fund, Norselab Real Estate Credit Opportunities will maintain high concentration and will leverage the team’s extensive experience with distressed situations. Known for his activist mindset, Hestnes anticipates leading several restructurings on behalf of bondholders while also integrating sustainability considerations and opportunities into the investment strategy. “Our goal is to have distressed companies make the right choices, and secure optimal solutions for the bondholders,” states Hestnes.

“With this new fund, we will make our mark in the Nordic real estate corporate bonds universe over the next 3-5 years,” envisions Hestnes. The market has already shown interest in the product, with the fund launching with nearly NOK 550 million under management and an asset management cap set at NOK 1.5 billion.

Wickström Refines Veritas´ Diversification Strategy

Eugeniu Guzun
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Wickström Refines Veritas´ Diversification Strategy

In late 2024, Laura Wickström concluded her first annual planning cycle as Chief Investment Officer at Veritas Pension Insurance Company, which shaped the investment strategy for 2025. A key topic during this process was the “need for diversification,” particularly as government bonds have recently struggled to fulfill their traditional role as diversifiers. “This is where alternative strategies come into play,” says Wickström, noting that Veritas has hired a new portfolio manager to support its growing emphasis on alternative, quantitative investment strategies.

“I’ve been at Veritas for over six years now – six and a half, to be exact – so I’m familiar with the organization and have closely observed the CIO role,” says Laura Wickström, reflecting on her trasition into the CIO role. “Even though I’ve been here for some time, there’s always room for improvement and development, especially as the market environment keeps evolving.” One of Wickström’s first major projects was revising the investment plan during the annual planning cycle, which the team typically finalizes at the end of each year.

This planning cycle, which demands a forward-looking approach, led Wickström and her team to conclude that diversification remains essential. “Last year, we saw a dominance of U.S. assets — and perhaps precisely because of that, a relatively concentrated segment of the market performed exceptionally well,” says Wickström. “While it’s important to participate in that success, you must also recognize the need to maintain diversification and not overlook its critical role in a portfolio.”

“While it’s important to participate in that success, you must also recognize the need to maintain diversification and not overlook its critical role in a portfolio.”Laura Wickström, CIO at Veritas Pension Insurance Company.

Diversification has become increasingly important, particularly as bonds have been providing less of a diversification benefit than in the past. “In this environment, it’s crucial to look beyond just the government bond segment for diversification and adopt a more holistic approach to portfolio management,” explains Wickström. “We’ve focused on refining our thinking around diversification, a topic that dominated our discussions when developing the investment plan for this year.”

Three Pillars: Carry, Diversification, and Hedging

A key part of the legacy left by former CIO Kari Vatanen is the structured approach to Veritas’ investment portfolio, which is divided into three functional buckets: carry-seeking, diversifying, and hedging. The alternatives portfolio, comprising hedge funds and other hedge fund-like specialist strategies, is similarly categorized based on each strategy’s function. With dispersion rising across asset classes, industries, sectors, countries, and other dimensions, the team led by current CIO Laura Wickström is focused on enhancing the portfolio’s diversification benefits by refining the hedge fund allocation, with a stronger emphasis on quantitative investment strategies.

“The dispersion across markets does present interesting opportunities. This is one reason why alternative strategies, in our view, now offer better prospects than during periods when volatility was low and somewhat suppressed.”Laura Wickström, CIO at Veritas Pension Insurance Company.

“There’s quite a lot of dispersion in the market right now, and I believe we’re in a different market paradigm compared to the pre-COVID era and the 2010s,” says Wickström. However, despite the presence of dispersion, she acknowledges that it’s not always clear how to capitalize on it, highlighting the ongoing need for diversification. “That said, the dispersion across markets does present interesting opportunities. This is one reason why alternative strategies, in our view, now offer better prospects than during periods when volatility was low and somewhat suppressed,” argues the CIO of Veritas.

Quantitative Strategies Take Center Stage

Hedge fund investments, which accounted for 10.5 percent of Veritas’ €4.7 billion portfolio as of mid-2024, generally serve a diversifying role within the portfolio. “We tend to favor systematic quantitative strategies over discretionary ones when it comes to hedge fund investments,” notes Wickström. She highlights the importance of maintaining a diversified allocation, saying that “the diversifying bucket is particularly interesting because you can’t always predict interest rates or the behavior of government bonds.” The team at Veritas “aren’t focused on trying to time or actively manage those factors but rather ensuring adequate diversification across the portfolio.” Wickström emphasizes that hedge funds play a critical role alongside the fixed-income and government bond components in various market scenarios.

“The key idea is to maintain diversification in various forms so that if one component underperforms, we can rely on other sources.”Laura Wickström, CIO at Veritas Pension Insurance Company.

The diversifying component stemming from hedge fund strategies is positioned closer to the government bond allocation, explains Wickström, “but it obviously features different risk drivers, ideally independent of market beta.” The hedge fund allocation specifically represents the diversifying bucket’s idiosyncratic return sources. “The key idea is to maintain diversification in various forms so that if one component underperforms, we can rely on other sources,” she adds.

The higher interest rate environment, which has favored certain hedge fund strategies, makes them more attractive relative to other approaches than in the zero-rate era. “These factors also make hedge funds more appealing on an absolute return basis when compared to other asset classes,” concludes Wickström.

Not All Infrastructure Is Equal: Beyond Traditional Infrastructure

Eugeniu Guzun
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Not All Infrastructure Is Equal: Beyond Traditional Infrastructure

Traditional infrastructure investments have long been viewed as an effective hedge against inflation. These investments generally benefit from stable, long-term contractual income streams from high-quality counterparties, offering reduced economic sensitivity and high cash flow visibility. However, infrastructure assets vary widely in their nature and performance. The performance of some assets such as airports or ports can be closely tied to economic growth, while others such as renewable energy assets may depend on prevailing electricity prices.

“Traditional infrastructure has indeed been a good hedge against inflation because long-term contracts or regulated mechanisms secure stable long-term cash flows,” confirms Gilles Lafleuriel, Head of Sweden at Obligo, a Nordic asset manager specializing in sustainable infrastructure and real estate. “These mechanisms are designed to adjust for inflation, so investors are not directly impacted by price movements,” he continues.

However, Lafleuriel points out that there are other ways to invest in infrastructure. For example, choosing not to hedge a wind park against power prices provides exposure to merchant risk. Obligo, which manages a diversified infrastructure climate impact fund focusing on renewable energy, clean mobility, and other sectors, has taken a merchant approach for their renewable power assets.

Recent low power prices across Europe, particularly in the Nordics and Sweden during the summer, have created stress on existing renewable energy assets. “Revenues have fallen short of expectations in the last few months, which has put pressure on liquidity and future cash flows,” acknowledges Lafleuriel. “We believe it may take several years for power prices to normalize to levels we thought would be achievable just six months ago,” he continues. “This certainly creates challenges for our existing assets, but we still believe in the long-term healthiness of the power market, driven by a steadily growing demand. Patience is key,” says Lafleuriel. As an investor, the short-term situation is creating both obstacles and opportunities for us.”

Adapting to the Nordic Market

Operating in the Nordic region has required Obligo to tailor its approach. “We are operating in the Nordics, a market that has its own characteristics,” says Lafleuriel. “The Nordic infrastructure market is heavily dominated by the public sector, leading to limited opportunities for private investors, often difficult to capture,” continues Lafleuriel, who has more than 20 years of experience in the infrastructure industry. This necessitates a creative approach to identifying, assessing, and executing investments.

“The Nordic infrastructure market is heavily dominated by the public sector, leading to limited opportunities for private investors, often difficult to capture.”Gilles Lafleuriel, Head of Sweden at Obligo.

Rather than waiting for the public sector to divest legacy infrastructure assets, Obligo has taken a proactive stance by investing early in the development of energy transition projects, including carbon capture and charging stations, among others. “We realized that we need to grab the bull by the horn, i.e. create value by building from scratch,” says Lafleuriel. “This approach means that we are investing at the very beginning of these projects, during the development or construction stages, and sometimes even earlier by taking a stake into the development companies.”

“We realized that we need to grab the bull by the horn, i.e. create value by building from scratch.”Gilles Lafleuriel, Head of Sweden at Obligo.

This approach involves taking on more corporate risk, often resembling private equity or venture capital, rather than pure infrastructure risk, according to Lafleuriel. “We’ve consciously decided to take on these risks,” says Lafleuriel. “While the end game is to be invested in operational assets, we start by investing at the earliest stages, from development through early operations.”

Investing Across Four Key Sectors

Obligo’s diversified infrastructure fund focuses on four core sectors: renewable energy, energy distribution and storage, clean mobility such as EV charging, and digital infrastructure. The fund holds both operational assets and development projects across these sectors. “We currently manage not only operational wind and fiber assets, but also development projects in solar, carbon capture, and charging stations for heavy trucks,” says Lafleuriel.

As an Article 9 fund under the SFDR, the Obligo Nordic Climate Impact Fund is committed to delivering measurable impact, particularly in combating climate change. “We achieve this by either investing in existing assets to sustain their operations or by developing new ones from scratch,” explains Lafleuriel. For instance, Obligo has invested in aging wind farms in southern Sweden, ensuring their longevity through efficient operations and, eventually, retrofitting and repowering when needed. “This adds value to the sustainability of the energy system.”

“We currently manage not only operational wind and fiber assets, but also development projects in solar, carbon capture, and charging stations for heavy trucks.”Gilles Lafleuriel, Head of Sweden at Obligo.

However, Obligo’s most significant impact comes from early-stage investments. “The most obvious value creation takes place when one takes a project from a concept on paper to full operations,” Lafleuriel notes. One example is Obligo’s investments in truck charging stations, which started as a stake in a development company and have now evolved into fully operational assets. “Our existing portfolio is a testimony of our investment philosophy: adding value by creating sustainable assets or ensuring their long-term operations.”

Obligo has positioned itself as a local investor with a strong track record of sourcing, executing, and developing infrastructure projects. “These deals are also not only difficult to source, but they are also, most of the time, fairly difficult to execute,” argues Lafleuriel. “Our approach isn’t traditional infrastructure investing, we offer a solution to diversify both infrastructure and private equity portfolios,” he continues. “But the end game remains the same and involves providing exposure to infrastructure assets that are and will be essential to the society for the long term.”

Investing in the Infrastructure of Tomorrow with ELTIFs

Master
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Investing in the Infrastructure of Tomorrow with ELTIFs

By Raluca Jochmann – Allianz Global Investors: The ELTIF, or European Long-term Investment Fund, is currently the topic of the day. The European Union launched the ELTIF back in 2015 with the aim of giving private investors access to illiquid private market investments. However, while the take-up of this investment vehicle has been rather slow, the latest amendments to the law, dubbed ELTIF 2.0., introduced several simplifications as of January 2024. This is expected to lead to an increase in product supply. Scope estimates the ELTIF volume to reach between EUR 30bn and EUR 35bn by the end of 2026, with at least 20 new ELTIFS on the market within the next year.1

Let’s look at infrastructure investments as a megatrend. In many parts of Europe, large parts of the existing infrastructure are several decades old, the limitations of which we experience on a daily basis. According to a study by the Global Infrastructure Investor Association, only 38% of people worldwide were satisfied with their infrastructure in 2023.2 Whether in rail transport, on the road or in places with poor mobile network reception, large-scale infrastructure investments are badly needed not only in Europe, but also worldwide. According to the infrastructure monitor of GI Hub, global demand for infrastructure investment is estimated at USD 94 trillion by 2040.3

Whether in rail transport, on the road or in places with poor mobile network reception, large-scale infrastructure investments are badly needed not only in Europe, but also worldwide.

The development of new infrastructure is a key factor for the future functioning of society, both in economic and social terms. The focus of investment needs is on managing the energy transition, digitalization and demographic developments. Former President of the European Central Bank Draghi pointed out in a report for the European Commission that Europe needs additional spending of around EUR 800 million a year to remain competitive, socially stable, and to meet climate targets. The range of projects that need to be tackled includes the expansion of broadband networks, modernization of local public transport and upscaling of electricity grids for renewable energy. However, state budgets are under pressure. Private capital, including that raised by ELTIF funds, can play a decisive role in funding these important projects. Expertise and market access are required to navigate the complexity of investing in unlisted, or private, infrastructure, which is why this asset class was previously available mainly to institutional investors and very wealthy individuals. The new ELTIF 2.0 regulation opens this investment universe to a broader group of investors. Now, one can invest in an ELTIF starting at smaller amounts of money and make a long-term investment in private markets, which can be a valuable addition to a portfolio invested in liquid equities or bonds.

The development of new infrastructure is a key factor for the future functioning of society, both in economic and social terms. The focus of investment needs is on managing the energy transition, digitalization and demographic developments.

What are the benefits of unlisted infrastructure from an investor’s point of view? Infrastructure has successfully weathered some challenging macroeconomic times in recent years, from the pandemic to the energy crisis and rising inflation.4 Critical infrastructure in particular – such as utilities, water supply, mass transportation, telecommunications networks to name just a few – provide essential services to the public and can usually generate relatively stable returns due to their strong market position (with high barriers to entry in asset-heavy, highly regulated low-competition markets) and potential for regulated or long-term contractually secured revenues. Also, often-times infrastructure revenues are directly or indirectly linked to inflation, providing a useful portfolio protection against rising prices. These features make infrastructure an attractive potential addition and diversifier to an investor’s portfolio.

Critical infrastructure in particular – such as utilities, water supply, mass transportation, telecommunications networks to name just a few – provide essential services to the public and can usually generate relatively stable returns due to their strong market position and potential for regulated or long-term contractually secured revenues. 

However, while return opportunities are attractive, one is well advised to also consider the specific characteristics and risks associated with private market investments. The illiquid nature of these investments means one should treat them as a long- term investment, not one that provides short-term liquidity. In addition to illiquidity, private markets carry specific other risks, which investors need to understand – by relying on appropriate advice and information – and properly consider in the light of their own portfolio objectives.

By investing in an ELTIF as a long-term addition and diversification to an otherwise liquid portfolio, private investors can make a threefold contribution – to a modern infrastructure, a sustainable society and their own wealth creation.

Find out more about Allianz Global Investors Infrastructure ELTIF by scanning the QR code.

Marketing communication. Infrastructure equity/debt investments are illiquid and designed for investors pursuing a long-term investment strategy only. Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested. Past performance does not predict future returns. ADM3594294

A Growing Asset Class for Icelandic Investors

Master
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A Growing Asset Class for Icelandic Investors

The size of the Icelandic pension funds, relative to GDP, is now larger than the combained market value of the country’s banks and insurers, with enough capital to buy all the listed equities and bonds of ISK6 trillion (Euro40.7billion) market. According to data from the Central Bank of Iceland, at the end of 2023 Icelandic pension fund assets totalled ISK7.71 trillion or 184% of GDP. This alone necessitates diversification internationally and also to alternatives there including alternative fixed income both home and abroad. 

Frjalsi Pension Fund, the fifth largest in Iceland with assets of ISK500 billion (Euro3.4 billion) and about70,000 members is the largest independent pension fund and has been focusing on investing in alternatives locally since after the economic crisis in 2008 and in foreign alternatives, including foreign fixed income, since 2019, a few years after the currency constraints were removed in 2017. Icelandic pension funds are currently allowed to have 20% in unlisted assets.

Halldór Grétarsson

The investment case for our investing in alternative fixed income is both diversification and returns, according to Halldór Grétarsson, senior portfolio manager responsible for alternative fixed income at Arion Bank’s institutional asset management arm which manages Frjalsi’s portfolio. Frjalsi 1, the largest investment path, is currently investted around 11% in unlisted assets (not including undrawn commitments), with about 2% in international alternative fixed income and 2,5% in the domestic market. 

Currently there is a 51.5% limit for Icelandic pension funds of investing internationally but this will rise to 53% in 2025 and at the same yearly pace to 65% by 2036. At the end of June about 39% of pension assets were invested internationally, according to the central bank.

“There are plenty of opportunities in Iceland but there are even more possibilities abroad,” Grétarsson noted. 

“The Icelandic alternative fixed income market started in full force after the 2008 Global Financial Crisis when the listed market shrunk severly. This spurred the fund management arms of local banks to start private equity funds, such as the Stefnir SIA series (Arion bank) and Landsbréf Hornseries (Landsbankinn),” he said, adding that there are also some smaller non-bank alternatives funds operators today such as Summa. “Over the past five years, the venture capital market has also grown Most of the larger fund management houses are also offering private debt funds,” he added.

Grétarsson continued: “We have been investing in foreign private markets since 2019. As Icelandic pension funds can only invest 20% in unlisted securities, we prefer and mainly focus on high-octane investments. When it comes to private credit, our focus has been on levered, direct-lending funds both in the US and in Europe, all of which are mid-cap market focused, with underlying companies between US$25-75 million EBITDA. We consider mid-caps a sweet-spot for us. It has to do with the accessibility to the lending markets by the underlying companies. If you go for the large-cap market then the companies can usually access the broader syndicated market and get better terms or access the high-yield market. If you go for small-caps then the companies are much smaller and usually with greater default risk. ”

He further noted that the investments are majority floating-rate senior secured loans. “Because of our preference of high-octane investment we have, in most case,  invested in leveraged funds. This is not what European investors typically prefer; it is more of a US-investor focus. But for us, if it is not leveraged the return target is often too low and then we’d rather do more private equity, because of the 20% limit we have on unlisted investments,” he explained, adding that the aim in alternatives is to scale up the portfolio returns over the long horizon. The portfolio is currently invested with two US managers and two European managers. 

In other fixed income segments Arion Bank invests in a high-yield fund focusing on Scandinavia. “We have seen that premiums in Scandinavia are, in some areas, higher than in Europe and differ to the US in that it is predominantly floating rate, giving us exposure to the credit risk without the interest rate risk,” Grétarsson said. “We are noticing that in the US managers have been increasing their allocation to payment-in-kind (PIK) debt. PIK is a type of loan where the borrower pays interest with additional debt rather than cash. ” he notes, adding that the portfolio is also invested in distressed debt funds which could benefit if signs of trouble materialise but also provides diversification.  Apart from Frjalsi, Arion Bank also manages the assets of five other pension funds. The average asset allocation to fixed income across Arion Bank’s portfolio is 54% out of which alternative fixed income constitutes approxinmately an aggregated 3%, and is increasing. 

Hjörleifur Waagfjörð, head of institutional asset management at Arion Bank, said: “In the portfolios we manage the average allocation to international alternatives is often on the range 5-10% and up to 7% is currently invested in domestic alternatives. In the domestic market we mostly use local funds or similar investment vehicles to access the alternative fixed income market.  These funds, such as the Stefnir SÍL Series, are a relatively new phenomenon, having been introduced in the last 10 years, focusing on secured loans.”

Hjörleifur Waagfjörð

Fixed-income related hedge funds are at this point in time not on the radar Waagfjörð said. “Our main foreign alternative focus in the last months has been on the secondary market and private debt. Since the interest rates are giving such a good expected return with some gearing on top, we have not seen the need to look at the hedge fund spectrum” he added.

Unlisted assets of portfolio mandates are currently well under legal restrictions giving room to expand its unlisted investments further, up to the 20%. Waagfjörð said the majority of unlisted illiquid assets are invested private equity, estimating that some 20-40% of flows to unlisted assets go to alternative fixed income. 

In June 2024 a law-change relating to pension fund investment limits was introduced which now  enables them to invest up to 5% of total assets in equities issued by companies active in the long-term residential rental market regardless of them being listed or unlisted.  This led to the establishment of, so far, the largest special residential rental fund Stefnir SRE III (by Stefnir, Arion Bank) with assets of ISK 40 billion. The fund is solely owned by only local pension funds. 

Other areas of the alternative fixed income market where Icelandic pension funds have been active for many years include consumer exposure through mortgage loans, both to fund members and through other channels.  As part of the country’s sustainable financing framework, introduced in 2021 and updated in 2023, green, blue and social bonds can be issued. This year the government issued a Green Bond to boost its sustainability credentials as well as a Gender Bond, designed to boost the financial health and welfare of women. Some of these bond issues have been invested in current portfolio of Frjálsi.

Picture: (c) By-b-hide-the-scene—shutterstock.com

A Map of the Evident Supercycle

Master
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A Map of the Evident Supercycle

“In 50 years of unbacked paper money, central banks have proved that the one thing they are capable of, is in fact not to maintain the value of the currency, but to devalue it to almost nothing while keeping its users in the dark. The “no inflation”-lie, must still be one of the best magic tricks ever performed in modern history.” From the memo Dawn of the supercycle from 2021. 

This observation from 2021 has proven prescient as we examine the current commodity supercycle. While it might look like inflation is contained at the moment, the rise in commodity prices is whispering about a near future of rising consumer prices.

Most investors with a predilection to macro have seen the chart below more than once in the last few years. And believe me, I get it. It’s a great chart. It’s even partly responsible for my career and one of the reasons behind experimenting with building the first version of Antiloop’s TAA strategy, Cygnus. However, it only tells half the story.

Commodities have only been this cheap compared to stocks twice before, right before the 1970s commodities boom and during the 1999 tech bubble. Both times were followed by secular commodities bull markets. 

During both bull markets in the 1970s and the early 2000s, the price of commodities increased by around 500 percent over a decade before falling again. We believe that this cycle has already begun.

Since 2020, the broad commodities index S&P GSCI has returned almost 200 percent, and, when compared to the two previous supercycles, the current cycle follows the same pattern. While there are similarities, it is also essential to acknowledge that different driving factors characterize all three cycles. However, the most critical driving factor remains the same: easy monetary policy.

To understand why we believe this cycle has already begun, let’s examine how previous supercycles unfolded.

A Tale of Three Eras: How Monetary Policy Shapes Commodity Cycles

Since the 1970s, the commodity market has witnessed three distinct supercycles, each shaped by unique economic and geopolitical factors.

The 1970-1979 supercycle was a perfect storm of economic upheavals. Oil shocks in 1973 and 1979 sent energy prices skyrocketing, causing widespread increases in consumer prices. The collapse of the Bretton Woods system in 1971 led to currency devaluations, making commodities an attractive hedge against rising prices. Cold War tensions drove up prices of strategic resources, while rapid industrialization in developing economies sustained demand pressure. This combination created a decade-long commodities boom that reshaped global markets.

The 1999-2008 supercycle was primarily driven by China’s voracious appetite for raw materials. China’s massive infrastructure projects and rapid urbanization created unprecedented demand for commodities. Steel consumption skyrocketed, copper prices soared, and energy demand surged. This demand shock collided with underinvestment in commodity production from the previous two decades, creating supply constraints. A weak U.S. dollar made commodities more attractive to international buyers, while increased financialization of commodity markets amplified price moves.

The current supercycle, beginning in 2020, is characterized by post-pandemic dynamics, a green energy revolution, and unprecedented monetary expansion. As economies recovered from COVID-19 lockdowns, pent-up demand collided with disrupted supply chains. Crucially, this cycle is underpinned by a significant monetary shift reminiscent of the 1970-1979 era. Since the introduction of quantitative easing in 2008, US public debt has grown to exceed the size of the economy by 2016, echoing the abandonment of the Bretton Woods system. This expansion of the monetary base, coupled with central banks’ continued expansionary policies, has made commodities an attractive investment and hedge against rising consumer prices.

Is it different this time?

Yes and no. As mentioned above, the catalyst for this cycle was disrupted supply chains due to the COVID-19 lockdown. This could have led to short-term price fluctuations (noise) if it had not been for the actual signal: the aggressively expanded monetary base. Another difference is the additional driver coming from the attempts to limit global warming. We have covered the nuclear power renaissance previously here, and the memo is more relevant than ever. 

The global energy crisis has fundamentally shifted the narrative around nuclear power. What was once viewed as a controversial energy source has become widely accepted as a crucial part of our energy future. Just a few weeks ago, Microsoft signed a deal to revive the Three Mile Island nuclear power plant in Pennsylvania. Last week, Amazon communicated that they had invested in developing SMRs through the nuclear start-up X-Energy, and Google said they had agreed to buy nuclear energy from SMRs developed by another start-up called Kairos Power.

While this nuclear renaissance could eventually lead to lower energy prices through reliable baseload power generation, the build-out will take decades. The immediate effect is quite the opposite – a massive increase in demand for uranium and other commodities needed for this unprecedented infrastructure expansion. And this is just one piece of the broader commodity-intensive green energy transition.

I did not intend to discuss nuclear power in this memo, although those who know me would tell you that I would never miss an opportunity to at least mention it if I had the chance. 

Anyway, I’m not just spiraling away from the point. While the green energy transition makes this cycle unique, what makes it particularly intriguing is how multiple forces are converging. The push for decarbonization requires enormous amounts of raw materials at a time when years of monetary expansion has already set the stage for higher commodity prices. Meanwhile, geopolitical tensions are restricting access to critical resources.

When we look back at this period a decade from now, we might well view the green energy transition as the visible catalyst that everyone focused on, while the real driver – the great monetary experiment of the past 15 years – was hiding in plain sight. Like all great magic tricks, it was performed right in front of us, so obvious that we completely missed it. The greatest deception wasn’t making money appear out of thin air, but making us forget what sound money looked like in the first place.

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Nordic Alternatives is a dedicated platform for institutional investors in the Nordic region, offering in-depth coverage of the alternative investment landscape. Through exclusive interviews, allocator insights, fund manager perspectives, and curated content, we connect decision-makers with ideas, trends, and strategies shaping private markets, hedge funds, real assets, and more. Our mission is to foster informed dialogue and knowledge-sharing across the Nordic institutional community.

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