Asset owner October insights: asset allocation changes, European investments, debates over pension reform

After a relatively quiet August, European asset owner activity gathered pace in September.  

At the start of the month, IPE broke the news that Norway’s sovereign wealth fund, the €2trn Government Pension Fund Global (GPFG) could sell €100bn worth of government bonds – almost foreshadowing what would be a month of protracted stress in global fixed income markets, with yields on key sovereign issues hitting multi-year highs. In letters to Norway’s finance ministry, GPFG’s manager, Norges Bank Investment Management (NBIM), advised the fund to reduce its benchmark’s allocation to sovereign fixed income from 70% to 50%, and that government bonds are weighted by market value instead of GDP. This would generate an allocation change of 20 percentage points to the fund’s allocation, equating to NOK1.22trn of bonds.  

Elsewhere in the Nordic region, pension funds have announced several new commitments to private markets. Danish labour-market fund PKA said it was investing DKK6.4bn (€860m) in European listed companies, while Danish peer P+ awarded Schroders capital with a €200m mandate to invest in European private equity.  
 
As the conflict in Ukraine rolls on and threatens to spill over EU borders, Defence assets continue to draw appetite from Nordic pension funds and asset owners. German investment manager DTCP announced the first close of a new defence-related fund with significant commitments from Denmark’s Export and Investment Fund (EIFO) and Danica, among others.  
 
Operational matters have also been drawing attention in the region. Denmark’s PFA has restructured its investment operation, reducing full-time investment professionals by one-third since 2020, while retaining substantial exposure to private markets – a trend that has raised questions about its business model. In Iceland, Gildi and Festa agreed to merge, potentially creating one of the largest pension funds in the country – the second largest in terms of assets and the largest by membership.  

Asset owners in both Sweden and Denmark have posted strong returns, albeit with some dispersion and questions hanging about underperforming investments.  

In the UK, all major policy areas have been in focus – DB surplus funding, value for money, consolidation in DC, LGPS reform, and corporate sustainability reporting. Various voices from the pension industry have called for a “practical, proportionate approach” to the release of surplus funding from DB pension schemes, as the Department for Work and Pensions’ (DWP) consultation on the matter closed in early September. Others have focused on the proposed reform of corporate reporting, with Railpen and ShareAction calling on the government to ensure that the reform does not weaken shareholder rights.

In other news, the UK Nuclear Liabilities Fund selected Brookfield to manage a long-term, multi-asset investment mandate, with an initial commitment of $1bn (€850m), while NEST announced that it had met the 5% unlisted equity target under the Mansion House Compact and the 10% private markets target under the Mansion House Accord, and urged other signatories of the agreements to follow.  

Meanwhile, the British Business Bank (BBB) and NatWest committed £50m (€58m) to multi-stage investment company Phoenix Court as part of a long-term partnership to support fast-growing British science and technology companies from seed through to scale-up, alongside the continued backing from M&G and HSBC. 

Dutch pension funds have been busy as ever, trying to navigate choppy markets as the final deadline for the transition to a new pension system approaches fast. Stichting Pensioenfonds Mars announced it had doubled down on its hedge fund exposure, increasing investments in the asset class from 11% to 21% last year while cutting equities from 14% to 5%. The pension fund for the retail sector, Detailhandel, revealed that it was hedging 80% of its equity risk in the run-up to the transition, following a study carried out last year.  

The Netherlands’ largest pension fund, ABP, announced a €1bn commitment to European venture capital over the next three years, in a move that some see as a deliberate response to the call on European pension funds to help reduce the gap in scale-up funding that plagues the European economy. BpfBouw, the pension fund for employees of the construction sector, selected BlackRock as a fiduciary manager for its €70bn portfolio, despite concerns that the firm’s lack of commitment to climate finance goals clashes with the pension fund’s own policy.  

France’s €26bn pension reserve fund, Fonds de Réserve pour les Retraites (FRR), is making headway in its private markets journey, having awarded €420m worth of mandates to Eurazeo Global Investor, Eiffel Investment Group and Zencap Asset Management, to manage unitranche private debt investments in French small and medium-sized enterprises (SMEs). The institution has also launched a tender to select two four-year transition management operations providers.
 
In Germany, asset owners have been fairly quiet, perhaps because of politics getting in the way, and a series of controversies involving individual pension funds. Real asset manager Deutsche Finance Group (DFG) has been sued by a domestic investor at the Munich district court for failing to disclose information about a key fund, while members of Hamburg’s lawyers’ pension fund voted against the re-election of the fund’s chair, due to his social media posts supporting positions close to Germany’s far-right Alternative for Germany (AfD).  
 
A key win for the far-right party in the Saxony-Anhalt regional election is putting pressure on the government’s pension reform agenda, even as asset managers gear up for an overhauled German pension system and various voices – such as the pensions association, aba, and a group of economists – have called on the government to stay the course in its attempt to reform and strengthen pension provision in the country. Meanwhile, the WIN initiative, launched several years ago to channel private capital towards SMEs and venture capital, is entering a new phase, seeking to unlock an additional €13bn to finance the German economy. 

In Switzerland, pension funds have been building up reserves to protect against market volatility, which they expect will continue throughout the last quarter of the year. In particular, last year they strengthened their “fluctuation reserves”, a risk management tool used to absorb temporary losses, according to pension consultancy PPCmetrics. This was done thanks to positive investment returns last year, and in spite of high interest rates on pension savings this year.  

Pension reform is also under discussion in Austria, where chancellor Christian Stocker floated the idea of a €100bn domestic sovereign wealth fund to support first-pillar pensions. The fund would invest in capital markets and be funded with up to €700m worth of profits and dividends generated by state-owned companies every year. The fund would seek to distribute €5bn annually to support Austrian public pensions. The proposal drew mixed reactions, with critics saying that earnings from state-owned companies already contribute to pensions through the government budget, and that reinforcing second-pillar pensions would be a better idea. Meanwhile, the Austrian parliament is closing in on pension reform – one key proposed measure would allow the country’s pension funds to increase risk and potentially returns beyond current levels.  

Italian pension funds have been urged unequivocally to invest more in their backyard, with finance minister Giancarlo Giorgetti questioning domestic asset owners why they allocate such a limited share of their assets to Italian companies and projects, during a speech at a high-profile policy forum. Few days later, Riccardo Realfonzo, chair of Fondo Perseo Sirio, the pension fund for employees in Italy’s public administration, proposed creating a public fund to protect pension funds’ investments in private markets and support the domestic economy. 

Pension funds’ climate strategies came under scrutiny last month, as Ben McNeill argued that they are stress-testing every climate future except the most likely one. 

Meanwhile, the Net-Zero Asset Owner Alliance (NZAOA) called on the private market to adopt credible net-zero strategies, with interim targets and clear governance behind it. In France, Caisse des Dépôts (CDC) said it will stop new debt financing to oil producers from January 2027, excluding green and sustainable bonds. Campaigners criticised the policy for leaving fossil gas largely untouched.