Stockholm (HedgeNordic) –  Ericsson Pensionsstiftelse (EPS), a Stockholm-based SEK 21 billion ($2.3 billion) pension fund covering Ericsson employees, is breaking with its strategy of the past five years and is adding active long-only managers to its equity allocation, an exposé of the fund’s current strategy by Sarah Rundell in top1000funds.com reveals.

“We haven’t used long-only managers in equity recently because we saw the stock market as a beta market,” EPS CIO Christer Franzén told the publication. “Now, however, because the market is so expensive and future returns are probably low from here, we assume there will be a greater disposition within the indices.”

EPS is set to use a concentrated portfolio of 30-50 shares in working with external managers, as opposed to the usual 100, favoring active managers to seek out alpha in less conventional places. The fund has also recently been focusing on cash-generating investments rather than capital gains, with its strategy focused on lowering portfolio volatility and achieving a higher Sharpe ratio. The fund prices in a risk-factor model based on classic asset liability management, studying potential five-year returns across all asset classes.

The fund’s current allocation is 35% in fixed income, 15% in credit, 20% in real estate and infrastructure, 10% in alternatives and 20% in equities. It has lowered return targets and divested from emerging markets in recent years, though it has started to look at these selectively again.

Traditional hedge fund strategies are “just another way of expressing an active and flexible approach, rather than being a separate asset class,” Franzén explained. “Returns from equities are normally, over time, the risk-free rate including inflation plus 4 per cent. This is more a common target for many hedge funds these days; if higher returns are needed, leverage will be involved.”

“Hedge fund fees are generally lower in Sweden compared with, say, London, where the 2/20 fee structure has been the standard, even though it’s starting to change now,” he added.

Franzén, though, remains wary of hiring too many external managers and consultants. EPS is down to 20 managers on its roster from an original stable of 35, and manages 40% of its assets in-house, mainly in fixed income and equity derivatives.

“We need to be able to take care of our own fixed-income risk,” he said. “My background is as a fixed-income trader, so anything on the macro front we are good at. In the equity allocation, we use derivatives as an overlay and are active if the markets give us the opportunity.”

 

 Picture: (c) Vintage Tone—shutterstock.com

Print Friendly, PDF & Email
The following two tabs change content below.

Glenn Leaper

Glenn W. Leaper, Associate Editor with Nordic Business Media, completed his Ph.D. in Politics and Critical theory from Royal Holloway, University of London in the summer of 2015, and is currently involved with a number of initiatives, including advising businesses and writing his first post-doctoral book. While pursuing his academic career, Glenn is also in the process of founding a Communications Consultancy. Following experience with a number of international organizations, businesses and ventures, he believes there is always a way to objectively improve the presentation, and representation, of a company or individual, and thereby increase the confidence of investors, stakeholders, employers – and voters. In an era dominated by technological innovation, he believes the human component of communication and its inherent potential should be safeguarded and revitalized. Glenn’s services span a range of activities, from writing, editing and branding to speechwriting, delivery, and tactical and strategic advice. His objective is to always provide a client with the extra push that can make the difference between success and failure. His hope, over time, is to translate such contributions to the political arena. Glenn currently resides in Vienna, Austria, having an international background spanning the UK, US, France, Spain, Belgium and Denmark. He holds an MA in English from the University of London and a BA in International Relations from Webster University.

Leave a Reply

Your email address will not be published.

Time limit is exhausted. Please reload CAPTCHA.