Schroders’ Johansen sees Nordic opportunity in assets/liabilities balancing act

Viggo Johansen, head of institutional sales, Nordic at Schroders, says the ongoing interest rate environment is creating challenges for but also opportunities for his firm in the local market.

Institutional demand for products and services in Sweden is subject to certain trends, says Viggo Johansen (pictured), head of institutional sales (Nordics and Sweden) at Schroders.

Much of the demand is linked to the impact of low interest rates and the struggle to balance assets against liabilities, he says. As an example of how the weight of liabilities is hitting the industry, Johansen mentions Länsförsäkringar, the collection of county or region-based financial firms offering general and life insurance and banking.

In the results for the first three quarters of 2011, ­Länsförsäkringar announced that in order to improve its life ­business figures, it had sold equities and increased the duration in its fixed income portfolio.

It was also looking to sell its Länsförsäkringar Fondliv business, while ceasing to take on certain types of new business in order to stabilise the relevant solvency ratio.

Interest over fixed interest

“With such a low interest-rate environment,” Johansen says, “and AAA ratings that may not actually be AAA, then questions arise around fixed interest. “Regarding equities, there have been ten years of low or no returns. So there are similar questions there. That makes alternative investments interesting – absolute return strategies – although that is easier said than done. So it is the full spectrum, including hedge funds.

“One client put it this way: ‘We have too much ­exposure to equity premium. We are looking for other risk ­premiums – that is to say other Betas, or other markets’.”
There is, of course, a search for stability among the ­volatility that local markets have experienced in recent years. The evidence is in the yields being seen on assets such as Swedish government debt, which is being bought by ­institutions locally and globally (as well as ­counterparties such as central banks).

But the focus on safe haven Nordic assets may be in turn storing up future problems for investors. Johansen says: “If we jump ahead ten years and look back, then I think the biggest mistake will have been to force people to buy ­government bonds at unattractive yields.

“That is why the trend on the fixed interest side is the hunt for yield – it is also why investment-grade, high yield, whatever it may be, is interesting. The old risk-free investments have shown to be not necessarily risk-free.”

Besides alternatives or fixed interest, there is also a trend among certain institutions towards indexing. 

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