Corporate bond investment is the latest trend in the Finnish institutional investment market, agree major asset managers in the country. At the same time, many investors are switching equity exposure further from home to abroad due to the somewhat narrow nature of the Helsinki stock exchange. Risk management solutions vary from house to house, but institutional investors tend to go for a global strategy in equity and at least a Euro-zone-wide brief in fixed income.
“On the fixed income side the most interesting trend is definitely Euro-zone corporate bonds – clients aren’t considering dollar or yen positions, it’s the spread risks themselves and their profit possibilities that interest the investors,” says Ari Aaltonen, managing director of asset manager Mandatum Omaisuudenhoito, part of financial group Sampo.
The change from mainly domestic government bonds to international corporate bonds in Finland has been fairly swift in the past few years, but the reasons are clear, too. Governments do not need to lend money at the moment. Timo Ronkainen, head of institutional clients at Nordea Investment Management Finland, says: “Corporate bonds are very interesting at the moment and many investors follow them closely, especially because many European countries are paying back debts rather than introducing government bonds.
“The number of corporate loans for sale in Europe is so large that it has been a great breakthrough for Finnish investors who can get a nice profit if they can manage the risks accordingly.”
Europe has become the home market for Finnish asset managers, even if it will take the institutional investors some time to change their briefs to a wider, risk-resistant, allocation. Matti Rantalainen, director of Opstock Asset Management, says: “The Euro-zone is our home market in shares, government bonds and investment credit class allocation. We also follow some industries on a global level but for the rest of the world we have teamed up with some other asset managers.”
The large national second pillar Finnish TEL pension funds, as well as the pension assets managed by large insurance companies, have followed a wider asset allocation strategy for a long time, while the smaller corporate and industry-wide pension foundations have been traditionally more conservative in their approach. The situation is changing, however. According to a recent study by Scandinavian Financial Research, 37% of Finnish pension foundation assets have been out-sourced, up from 26% last year. At the same time the amount of entirely self-managed assets fell from 58% last year to 48% this year.
Asset managers are all in very much the same situation, as their clients have a large amount of assets invested in the Helsinki stock exchange. Petri Ukkola, head of investments at Tresor Investment Management, says: “We are working with briefs that are heavily weighted on domestic stocks – technology, for example – so we need to lower risks by widening the equity exposure.
However, most Finnish pension institutions still have a conservative asset allocation in their brief but new clients are generally in a better position to spread their risks, says Aaltonen at Mandatum: “About half of our institutional clients’ investments are currently in domestic shares, but we consider a European allocation a minimum safeguard for managing the risks of Finnish assets. New clients, however, with cash in hand, start building a wider allocation from the beginning, while someone with Finnish stocks only doesn’t alter his brief overnight to an optimal one.”
Change doesn’t come quickly for an old player and it is difficult to change a pension institution’s investment strategy, especially when world equity markets are not at their best. Finland, together with the rest of the Nordic countries aren’t at the bottom end of global asset allocation, says Mikko Koskimies, managing director of Alfred Berg Asset Management Finland, part of the ABN Amro group.
Finnish investors seem to be divided into two main categories in investment strategy thinking, and opinions vary on whether passive briefs are useful and worth the money or not. There seem to be two main approaches to investment strategies in the Finnish market, says Ronkainen at Nordea: “A lot of companies have taken up a core-satellite approach and then there are those who invest almost completely actively.”
Petri Ukkola, head of investments at Tresor Investment Management, a purely active manager, sees the solution to risk management in picking particular stocks, rather than investing in funds. Finding the right investment for a particular investment brief can be quite tricky, however, and sometimes global tools aren’t perfect, Ukkola says: “We use indexes like Eurostoxx and Morgan Stanley but you have to be careful with some industries. Finnish forestry companies are part of ‘basic resources’ so there’s no point in buying continental basic resources or technology stocks if you want to lower your risk exposure. You don’t get that from investing in a European index fund that invests a lot in Nokia either, which is why we have a purely active strategy.”
Apart from international blue chips some investors are directing funds into small capitalisation companies in the US and Europe in particular. Koskimies at Alfred Berg, says: “Large pension institutions invest globally also in smaller companies.”
Alternative investments, although in the headlines often, have not been a great success so far, and cash has been directed sparingly into a few products only. “Last autumn we launched a global high yield product, which was selling well over the winter but during this year interest has been waning. At times like this investors have a low level of risk appetite, which is reflected in the sales of the products.,” says Ronkainen at Nordea.
Funds of funds are also making their way to the market but the Finnish asset managers know that investors are nervous. “We are launching a private equity fund of funds, probably before the end of the year, but clients seem to be quite cautious at the moment: any product with the words ‘share’ or ‘corporate’ in its name causes uneasiness,” says Aaltonen at Mandatum. “I’d be surprised if these products would sell well right now, investment funds have really dominated the institutional market, while new money is waiting to be invested. Funds of funds won’t become mainstream, private equity funds are spices in the mix, just like hedge funds – the big investors don’t run after these trends,” he adds.
Rantalainen at Opstock comments on what has been learnt in the last couple of years of turbulent markets: “The markets have normalised in that time and investors’ risk-profit thinking has changed as a whole: strategies have to be made for long-term investment. The world isn’t going to change, one day stock prices are going to halve again, and there’s no bottom, they can slump again after that. You always have to make sure that you’re prepared for the worse. You can’t take more risks than you can handle, if you have to sell in a situation like this it is likely that your risk level has been too high.”
Many Finnish institutional investors use the services of actuarial consultants but investment consultants are few in the country. This year, however, there are clearer signs of the industry getting its share in Finland, and both asset managers and investors seem to welcome them. “I have nothing against consultants, it could actually make people see through some pre-set ideas when they choose asset managers,” says Ukkola at Tresor. Koskimies at Alfred Berg, also, sees consulting services as an important part of investment business because they know the industry and the people in it.
So far, it has been mainly up to the investment manager to take the role of the consultant in helping the investors to create briefs for the institution’s needs and then investing according to the clients’ wishes.

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