Despite double-digit returns from local equity markets over the course of 2013, much recent Nordic pension investment activity focuses on real yields.

The low yield environment notwithstanding, fixed income is still the predominant asset in many pension investors portfolios, accounting for 60% of assets.

A snapshot of mandate activity over the last six months shows a steady flow of commitments, especially from Danish investors, to infrastructure and real estate – from hospitals, through power distribution networks to traditional core property.

Continuing its interest in renewable energy, PensionDanmark spent DKK2.9bn (€384m) to buy into the power distribution network of the Dutch firm TenneT – fed by North Sea wind farms – with the asset sourced by Copenhagen Infrastructure Partners, the recipient of DKK6bn in seed capital from PensionDanmark.

Along similar lines, the fund also invested in the Danish Climate Investment Fund – a DKK1.6bn vehicle funding renewable energy builds in developing countries, on the understanding that Danish companies are granted the contracts. However, it was not the only pension fund committed to the project, with capital also coming from ATP, PKA, Pædagogernes Pensionskasse and Lønmodtagernes Dyrtidsfond (LD Pension).

LD Pension also sought increased equity exposure, awarding mandates to Carnegie Asset Management for Danish equity and to Impax Asset Management, targeting environmentally friendly firms.

The increased allocation, however, is atypical. “To me, investment seems quite static,” says Casper Hammerich, a senior investment analyst in Kirstein Finans’s Copenhagen office. “I don’t think investors are increasing their allocation, they are simply benefiting from it.”

Real estate has also factored in the search for yield, and the Norwegian Government Pension Fund Global has bought up a number of safe haven property assets in Germany, the US and UK. Following step, Cityhold – a property company jointly owned by Swedish buffer funds AP1 and AP2 – has entered the German market, while ATP and PensionDanmark joined forces to ensure a core retail asset – the former home of the department store Magasin – stayed in domestic hands.

The attractiveness of infrastructure, outside of the renewables sector, is apparent, thanks to a DKK430m public private partnership commitment by three Danish investors to build and maintain a new psychiatric hospital. Additionally, Finland’s Keva and LocalTapiola acquired a 20% stake in a local power distribution network.

However, despite the focus on real assets, fixed income and other assets have not been completely discounted – with a recent DKK750m allocation to local currency-denominated emerging market debt by an unnamed Danish pension fund.

Hammerich says this is despite volatility in emerging markets over the past 18 months. “I think there is a firm belief in emerging markets, that it’s the place to be in for the long haul. We did hear some investors moving more into frontier markets for instance,” he adds. “So at least it seems investors are daring to move further into the emerging markets.”

In addition to emerging market debt, Hammerich says Kirstein has seen evidence of pension investors moving further into the traditional banking market, buying up bank loans – and specialised credit a topic has been much discussed by the consultancy over the last year.

Hammerich says the shift into bank loans is now largely a done deal, and investors are now looking “further down the risk curve” at products such as leveraged loans and mezzanine debt.