FINLAND - Around 20% of Finnish institutional investors say they will increase their use of discretionary and mutual fund management by the end of 2004, according to an industry report released in November by Scandinavian Financial Research (SFR).
The shift will significantly open up a market where in-house institutional asset management has remained popular due to large exposure to domestic bonds and equities.
The SFR report, one of the most important annual snapshots of the Finnish institutional market, reveals that 25% of Finnish investors will increase the use of discretionary management, while just seven per cent say they will decrease discretionary outsourcing. Similarly, 33% say they will use more mutual funds in the next two years, while only 15% claim they will reduce external fund exposure.
In total, just short of 40% of Finnish institutions say they will reduce the amount of self-managed assets in the fund, against 10% who say they will take more money back in-house.
According to SFR, just over 50% of the assets of Finland’s pension foundations are currently managed in-house, with 28% run through segregated mandates, 14% through mutual funds and 4% using external consultation.
The predicted net outsourcing of assets will greatly interest both domestic and foreign managers, many of whom already have mutual fund relationships with Finnish asset managers.
However, in terms of using external consultants the overall message going forward is still mixed: 10% of Finnish institutional investors say they will use more external advice, while 9% say they will use less. Nonetheless, according to the SFR survey, 13% of pension foundations say they intend to use a consultant for asset manager selection, 25% for mutual fund selection, 19% for investment planning and 38% for consolidation of reporting.
The survey also reveals that over a third of the Finnish institutional investment market is made up funds with more than 500 million euros in assets.
Annual growth for 2003 for the totality of Finland’s institutions is estimated at 1.5%. However, for the country’s corporate pension foundations the growth rate in 2003 is expected to be higher at 7.3%, with growth rates of 6.2% for the country’s insurers.
In terms of asset allocation, the survey records that by the end of 2004, mutual fund investment, which accounts for 14% of Finnish pension foundation exposure, will show significant rises in corporate bond and high yield. The same will apply to equity funds in Europe, the US and Asia.
The biggest rises though are predicted for index and hedge funds, which are expected to rise by around 30% and 40% respectively.