Ready to pounce

Judge’s comment: “Displaying innovation and forward thinking, the opportunities taken have resulted in strong returns, carefully managed risk and a happy clientele.”

With just under €1bn in assets, Frjalsi Pension Fund’s long-term investment strategy is aimed at achieving its investment objectives by following an active approach. Seeking to benefit as much as it can from diversification, the fund’s board specifies its strategic asset allocation (SAA) over a long-term horizon. The SAA is revised at least once a year to reflect the fund’s risk return expectations on the basis of an in-depth review of its three to five-year macroeconomic view.

Frjalsi’s fund managers strive to outperform benchmarks derived from the underlying SAA over a five-year horizon by making short-term tactical asset allocations (TAA) within pre-determined limits. These tactical deviations are central to Frjalsi’s active strategy, allowing for a timely response to investment opportunities and for risk exposures to be managed in the short term. This strategy is implemented by employing a mix of internal and external investment managers and a wide range of asset classes, including equities, fixed income, cash, private equity, real estate and infrastructure.

Frjalsi’s risk management forms an integral part of the investment strategy, enabling the fund to monitor exposures efficiently on a look-through basis to the underlying assets held in investment funds. It primarily consists of pre and post-trade compliance checking, value-at-risk measurements and stress testing, along with monthly actuarial reports.

Although Frjalsi’s long-term investment strategy has fundamentally remained unchanged over the last ten years, the fund has nonetheless had to adapt to changes in its environment. These changes include allocations to domestic private equity as the fund’s universe of investable assets has shrunk, increased reliance on internal investment management for the domestic market and strengthening the fund’s risk management.

With capital controls still in place after the crash of 2008, Frjalsi sought to diversify by investing in commercial real estate as well as domestic companies with foreign revenues from 2012 to 2015. This has been possible with the re-emergence of domestic asset markets in Iceland. Along with considerable allocations to inflation-linked government bonds, this will put the scheme in a favourable position when the controls are relaxed.

With the economic outlook favourable, Frjalsi sees further opportunities in investments that support sustainable growth. Frjalsi has taken a leading role in private equity projects, focusing on infrastructure as well as export driven companies that harness the country’s renewable hydroelectric and geothermal energy, such as data centres and silicon metal production plants. Furthermore, the Icelandic government has introduced a capital control liberalisation strategy that will alleviate Icelandic pension funds’ lack of investment in foreign assets, which are necessary for proper diversification. Looking forward, Frjalsi will therefore aim to increase its allocation to foreign assets from a modest 20% now to a long-term target of between 40% and 50%.

Frjalsi’s success has demonstrated how its long-term strategy based on macroeconomic analysis can capture investment opportunities and manage risks, even during periods of excessive economic volatility. Over the past five years, this has enabled Frjalsi to generate annual average returns ranging from 6.9% for its least risky portfolio to 10% for its risk-seeking portfolio, while outperforming its benchmarks by 0.2% to 2.6% each year over the same period. These results are a testament to the viability of the fund’s long-term investment strategy. Peformance is measured not just in terms of returns and growth, but also in terms of member satisfaction. In a recent poll of the attitudes of fund members towards Icelandic pension funds, Frjalsi was among the two pension funds that scored the highest on all key issues, including trust towards the fund and satisfaction with investment returns.

2014 Essentials

Frjalsi Protection Fund


Founded in 1978

Hybrid arrangement multi-employer fund


  • active: 18,991
  • retirees: 3,062
  • deferred: 27,483
  • Assets: €946m


  • one year: 5.7%
  • three years: 8.3%
  • five years: 8.7%
  • ten years: 8.8%

Quick facts

  • Annual review of strategic asset allocation drives tactical allocation
  • Integrated look through risk management framework
  • Private equity focusing on infrastructure, renewable hydroelectric and geothermal energy


  • Accenture Defined Contribution Pension Plan Ireland
  • Pensio B Belgium
  • Pensions Caixa 2 Spain
  • Victoria-Volksbanken Vorsorgekasse AG Austria


  • Richard Campbell
  • Nora Finn
  • Philippos Mannaris
  • Bob Young