Finland's Veritas to ramp up EM exposure to 20% of equities
FINLAND - Veritas, Finland's €1.9bn mutual pension insurance company, plans to grow the share of its emerging markets exposure to 20% of all equities in the coming five years.
Staffan Sevon, chief investment officer, said the fund was also likely to bring its exposure to alternative asset classes up from 1.8% to approximately 5% over the same period.
"Many are of the opinion the future is not in Europe," Sevon said.
"Opportunities in emerging markets are very heterogenic - Russian equities are partly still very reasonably priced, the fixed income markets in Brazil and Latin America are overall interesting and, despite the small size of the market and corporate governance challenges, we can also look at Africa for opportunities."
He said the upper limit for emerging market equities for pension investors in Finland - 20% - was "too low".
This year, Veritas has outsourced the management of additional new areas for external managers.
"We went through all the mandates we had and gave new areas for external management - for example, we outsourced Russian equities," Sevon said. "It is an asset class best managed from Russia, rather than from Helsinki."
Currently, half of Veritas' equity portfolio of €661m is invested in Finland.
On the bond side, 15%, totalling €806m, is invested in domestic fixed income.
In addition, the firm has invested €353.5m - equivalent of 18.3% of the portfolio - in domestic property.
Over the first half of 2010, the overall portfolio returned 3.8%.
Sevon said Veritas prioritised the long-term return potential of any stock rather than its country of origin.
"Our approach is to screen for companies with the best long-term potential, whatever the country of origin of the stock," he said.
"Of course, supporting Finnish companies and the domestic labour market is important, but we are not interested in funding unprofitable companies simply because they are Finnish.
"Domestic companies certainly play a central role in our strategy, but only when they can be argued to have return potential."
Veritas is also looking at way to reduce exposure to reinsurance risk.
"In addition to this," Sevon said, "the share of private equity - now approximately 0.8% of the total portfolio - is likely to go up within the alternatives allocation.
"Exposure to property investments may also go up, but this is not certain yet."