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Portfolio Aberdeen’s magazine for Nordic investment professionals 2 • 2010

| 12 Emerging markets debt


CEO Timo Ritakallio, Ilmarinen: Regulation increases transparency Maria Loft from SEB meets Aberdeen At the Club

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| 16

“In a world that keeps changing fast, responsible investing is an important part of risk management says Eeva Grannenfelt, Chief Investment Officer at Pension-Fennia.

2 Aberdeen Perspective

Text Kaisa Alapartanen Photos Aberdeen

Braemar stone Braemar stones, which must weigh between 22 and 26 pounds, are used in the Scottish Highland Games. The stone toss is one of the highlights in any Games: kilted men “put� the stone from a standing position with no run up.

Aberdeen 3

Written in stone


he British Garden in Hanover Square, NYC is a gift to the city and people of New York. The Garden was created to honour the memories of the 67 British citizens who lost their lives in the WTC attacks on September 11, 2001. Aberdeen Asset Management donated a Scottish Braemar stone and plinth to the Garden in June 2010 when the garden was opened by Her Majesty the Queen. As a lasting piece of Scottish culture in the centre of New York, the stone symbolizes the strength of Scottish and British friendship towards the US. â–˛

g .or

den gar h s riti om w.b set.c w s : w n-a e est ter bered n i f a . o ks www Lin



Perspective 2 4 Contents Editorial 5

6 Forum Changing perceptions


12 Horizons Towards a more open future

In Brief

In the Spotlight Making a difference

16 17 Around the Globe

4 Aberdeen Contents

At the Club Strategy is a long-term commitment


Portfolio is Aberdeen’s magazine for Nordic investment professionals. • Send us feedback and ideas to: • Editor-in-chief: Hanna Duncker,, Lena Ellertsson, lena.ellertsson@aberdeen-asset. com • Editorial office and layout: Otavamedia Oy/ Viestintätoimisto Sanakunta • Orders and change of address: • Printed by: Newprint Oy • Cover photo: Riikka Hurri, Shutterstock.

Aberdeen Editorial 5

Dear Reader “The Nordic region has come out of the economic slow down with flying colours.” SRI has been on Aberdeen’s agenda for two decades and its importance continues to grow. Consequently, we wanted to put the topic of Socially Responsible Investments (SRI) into the spotlight in this issue of Portfolio. Another important issue is addressed in our Horizons article, the questions of regulations within the asset management industry. We feel that increased transparency is very important in our line of business and are following the current regulatory processes attentively. There is a consensus among many institutional investors that some portion of their portfolio should be allocated to emerging market investments, due to a scenario of strong growth. In this issue we focus in Emerging Market Debt which has developed from being the extra spice to an established asset class among many Nordic investors. Finally, the year 2010 has seen the global economy recover. The Nordic region has come out of the economic slow down with flying colours. This is also reflected in the property market and in the final section of this issue Marita Loft, from SEB gives her opinion on this subject.

The Nordic region has come out of the economic slow down with flying colours.”

I want to thank Marita and all our interviewees for taking the time to share their professional views with us. As the year is soon coming to its end I would like to wish all our readers a happy holiday season and a prosperous year 2011. Tonny Nielsen Head of Property Investment Management, Nordics and Eastern Europe Aberdeen Asset Management

For Professional Use - Important information The content of this document, including any expression of opinion or forecast, has been obtained from or is based on sources believed to be reliable. The content may include projections or other forward looking statements regarding future events or future financial performance of countries and markets - actual events or results may differ materially. No guaranteed is given as to the accuracy, adequacy or completeness of the content of this document and no responsibility is accepted for any loss arising from use of this document. For the purposes of the Markets in Financial Instruments Directive the content of this document is not investment research or non-independent research. This document is published by Aberdeen Asset Management Finland Oy, Mikonkatu 9, FI-00100 Helsinki, Finland. Business-ID 1604474-5 © 2010 Aberdeen Asset Management all rights reserved. No part of this document may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without the prior written permisson of Aberdeen Asset Management.

Photo Olav Heggo

Nordic investment markets remain attractive The global economy has enjoyed firm recovery since the beginning of the year, with second-quarter growth in the euro-zone at its highest quarterly pace since 2006. Due to high confidence levels and upbeat domestic indicators, Nordic investment markets remain attractive, notes Lars Flåøyen, Head of Nordic Property Research and Strategy at Aberdeen.


enmark, Finland and Sweden were among the fastest growing countries in Europe in Q2. Growth rates have been somewhat disappointing for Norway in recent quarters, but the relatively mild slowdown for the economy in 2008 and 2009 implies that Norway is growing from a much higher absolute activity level than most other countries,” Flåøyen says. Flåøyen warns though that several of the main drivers behind growth are temporary – including low interest rates, fiscal stimulus measures and the rebuilding of stock. With growth in Asia and the US also slowing, there are reasons to expect growth rates in the export driven economies of the Nordic region to slow into 2011. “Global growth has slowed in the second half of 2010, although there are few indications that a double dip recession is on the horizon. In general, de-leveraging of household and bank balance sheets in the U.S. and in many European countries is the main reason for a moderate growth outlook for 2011.”

Investors playing it safe In Nordic markets, risk aversion is still relatively high, with substantial risk premiums and government bond yields being at a very low level. “Hence, when looking for income combined with low-to-moderate-risk, many investors have started to look at alternative asset classes with higher income returns, such as property. However, Nordic equity markets have gradually been developing more positively with the volatility in recent months much lower than that observed in the spring when fears of a sovereign debt crisis emerged,” Flåøyen says. 

6 Aberdeen In Brief

The interview took place on 2nd November.

Many investors have started to look at alternative asset classes with higher income returns.”

Aberdeen 7

Aberdeen appoints new CIO for Property

Aberdeen raises 127 million euros for its property funds in the Nordics

Russell has also joined the company’s Management Board. He will work to develop Aberdeen’s investment process and manage the global investment strategy team for property which has staff in nine countries.

Photo Aberdeen

Aberdeen Asset Management has appointed Dr Russell Chaplin as Chief Investment Officer, Property.

Over the past few months, Aberdeen Asset Management has raised capital for several of its pooled funds in the Nordic region to a total value of 127 million euros. The funds in question are domestic funds in Finland, Norway and Denmark, as well as the group’s Pan-Nordic fund.

Russell joined the company from UBS Global Asset Management where he ran the company’s global property strategy team. Russell has a PhD in Land Economy from the University of Cambridge where he also lectured. 

Team Europe won the 38th Ryder Cup competition – held for the first time at the historic Celtic Manor Resort in Wales – with US Open Championship winner Graeme McDowell’s 3&1 victory over Hunter Mahan giving Europe the dramatic 14 1/2 to 13 1/2 triumph. The matches were held 1–4 October 2010 and with USA as the defending Cup holder, the event was played on the newly-constructed Twenty 10 course, specifically designed for the Ryder Cup. The team captains were Colin Montgomerie for Europe and Corey Pavin for the USA. Aberdeen is delighted to sponsor Scottish golfer Montgomerie who has been a major figure in the turnaround of European Ryder Cup fortunes since making his debut appearance in the bi-annual competition in 1991. In total, he has recorded eight cup appearances and finished on the winning side on five occasions. 

Photo Aberdeen

Colin Montgomerie leads European victory in 38th Ryder Cup

“We are delighted that several new investors have expressed confidence in the Nordic property markets, and in Aberdeen, by investing into our domestic and Nordic property funds,” comments Tonny Nielsen, Head of Investment Management for Aberdeen in the Nordic region. 

8 Aberdeen Forum

Aberdeen 9

Changing perceptions Inflows are increasingly moving to emerging market debt, an investment area once perceived as opportunistic. Understanding the landscape is crucial. Text Satu Jussila Photos Shutterstock


merging market bullishness is now the consensus view,” declares Arnab Das. “Everyone believes it and is putting their money into it.” Das works as the managing director of market research and strategy at Roubini Global Economics, an independent macro-economic and market research firm. A statement like this a few years back would have raised eyebrows, but the global financial crisis has revealed a stunning reality. What we have now come to understand is that the robust growth rates in many Western economies in the years leading to the crisis were driven by an unsustainable leveraged asset bubble. Consumption was in excess of labour income and many were living well past their means.

Domestic players are common

Risks are outside asset class

The crisis also revealed some other noteworthy developments. When the spreads for emerging market debt in Poland went dramatically down in 2008 and early 2009, local pension funds went on a buying spree.

Given all this, it is not surprising that a change in perception is taking place. “When you look at Latin America, Africa and parts of South and Southeast Asia,” says Das, “you see favourable demographics, a good structural story and the lowering of trade barriers.” Therefore it is little wonder that investors looking to diversify their portfolios are taking a look at instruments once perceived as opportunistic.

Many emerging markets nowadays have domestic institutional players with a vested interest in making sure local instruments are fairly priced and do not fall sharply; this larger investing population is improving liquidity and helping to stabilise prices even during times of extreme crisis. Also, there is increased willingness of local players to take longer maturity risk signifying that these investors have a positive view on continued economic stability.

Everyone believes it and is putting their money into it.” Arnab Das

10 Aberdeen Forum

But while the West lived with ‘champagne tastes and beer budget’, a very different scenario emerged in lesser-developed portions of the world. “In contrast, the last ten years – with the exception of Central and Eastern European markets – has seen a de-leveraging of balance sheets in the emerging markets,” says Das.

Changing demographics also support the developing world. Citizens in emerging markets are younger and are providing the fuel that will spur job growth and consumption well into the foreseeable future.

Finally, many emerging market governments have also learned to better react to turbulence and have lower debt levels than their developed counterparts. In the months following the closing of Lehman Brothers, Brazil cut interest rates – making it the first Latin American central bank to successfully stem a recession using monetary policy measures.

What the world is bracing for now is a much anticipated recovery from the developed world – or, alternatively, more bad news. “The greatest risk right at the moment stems from the possibility that negative events will unfold outside the emerging markets,” says Kevin Daly, a portfolio manager with the emerging markets debt team at Aberdeen Asset Management.

Assessing the risk appetite As a shift to emerging market debt takes places, investors are left to ponder allocation between U.S. dollar denominated hard currency bonds or local currency bonds. Improvements in the debt levels of developing countries following the crisis partly drive hard-currency returns. But different drivers exist for soft currency bonds. “Local currency debt offers attractive yields and the benefit of currency appreciation, as inflows increase,” explains Daly. Also, the central banks of many developing countries are steadily accumulating foreign

Aberdeen 11

Keeping an ear to the ground

exchange reserves and have learned how to take a pro-cyclical approach to controlling local inflation. These developments are helping to lower currency risk and are providing the possibility for bond yields to fall and come close to those in developed bond markets.

Local currency debt offers attractive yields and the benefit of currency appreciation, as inflows increase .” Kevin Daly

Investors in soft currency bonds are interested in tapping into the different yield curves of individual markets which are based on current fiscal and monetary cycles. Careful attention is needed to understand local conditions as differences can vary greatly. “Emerging market debt will continue to improve in terms of credit quality in a backdrop of deteriorating quality in the developed world,” predicts Daly. For investors, new avenues are opening that beckon a re-assessment of different investment instruments. In the current environment, achieving a desirable allocation means acknowledging the changing dynamics and taking the right steps based on your risk appetite. 

A proven track record of performance is critical for success when assessing a potential partner. Aberdeen Asset Management has a dedicated team of ten professionals working in emerging markets debt. Maintaining capital preservation is an important part of the team’s investment approach.


e feel it is vital that we remain up-to-date on all relevant market movements – from individual event risk to greater global political risk – and respond accordingly,” explains Kevin Daly, portfolio manager. Outside of the year 2008 – which was an exception based on any standards – the Aberdeen emerging markets debt team has outperformed all client targets. “Strong inflows of funds for several years running are a good sign that investors are rewarding our performance,” he adds. Daly feels that, in this investment sector, local presence is really important to making the right allocations. “In several key markets – Brazil, Mexico, Turkey and Indonesia, to name just a few – we have strong local contacts. Maintaining a close connection to the people on the ground is vital. Analysing market events and forecasting developments in economic cycles based on looking at financial data alone is only the starting point in order to understand the drivers for performance in emerging market debt.” 

Making a difference Everybody in the business is increasingly thinking about responsible and sustainable investments.

12 Aberdeen In the Spotlight

Text Lena Barner-Rasmussen Photos Riikka Hurri

Eeva Grannenfelt and Ulla Salomaa work for Pension-Fennia, a Finnish pension fund that has increasingly put responsible investment on its agenda.

Aberdeen 13


esponsible investments are on the rise. More than 17 per cent of Requests for Proposals issued this year to Aberdeen Asset Management specifically asked whether or not managers are PRI signatories. Environmental, Social and Corporate Governance (ESG) issues are also an important aspect of Aberdeen Asset Management’s offering to its institutional clients. Sustainable and Responsible Investing (SRI) has been on Aberdeen’s agenda since the early 1990s, and the company’s engagement was further deepened as Aberdeen became a signatory to the United Nations Principles for Responsible Investing (UNPRI) in December 2007 (see fact box). Responsible Investing (RI) is part of the Aberdeen’s overall Corporate Social Responsibility (CSR) programme. There is an RI policy in place for equity investments and the development for a policy for the property side is in progress.

For equities, Aberdeen’s RI policy is to engage companies on ESG matters. ”We see these extra-financial topics as critical to understanding the whole picture of the companies in which we invest. Research on all ESG topics help us to monitor an investment’s behaviour as well as risks associated with its financial strength”, says Cindy Rose, head of SRI Research on the Global Equities team at Aberdeen Asset Management. The financial due diligence is always conducted first before moving on to the ESG analysis. ”It doesn’t make any sense to do it the other way around as however prudent a company is on ESG matters, it will be an unattractive investment if the balance sheet looks awful.” Aberdeen offers three different options for ESG. The first is negative screening – for those clients who

want to avoid certain industries such as gambling, tobacco and weapons. The second option is an ”engagement only” approach, which allows investors to invest in companies that may be excluded from traditional SRI type funds. By active engagement Aberdeen tries to steer the investee companies toward more responsible ways of working. A third option is a hybrid of the first two. It is an ESG / engagement fund, but retains five, or perhaps six, negative screens. This type of fund offers investors fewer negative screens than traditional funds along with the ability to engage their holdings on ESG matters. The SRI team at Aberdeen consists of five full-time SRI analysts. These analysts conduct research on companies and write full ESG reports on all the companies in the investable universe on an annual basis. Updates to the annual SRI reports are produced regularly and the team has frequent contact with investee companies. All reports and

updates are kept on Aberdeen’s database and are accessible by the investment teams so that they also have a more complete picture of investee companies.

Nordic countries According to Aberdeen’s White Paper on ESG commitments (see fact box), the Nordic countries have been at the forefront of adopting SRI standards in their way of working – Denmark, Sweden and Norway have been leading the way, with Finland following close behind. Pension-Fennia, a Finnish pension fund, is one of the companies that has increasingly put responsible investment on its agenda: their interest in this subject goes back to 2000. ”That year we made up some ethical principles for investing. In the beginning it was mostly about negative screening”, says the company’s legal counsel Ulla Salomaa, who is also responsible for developing SRI at Pension-Fennia.

Salomaa is a board member of FINSIF, Finland’s sustainable investment forum that was founded in June this year.

According to Grannenfelt and Salomaa, it was a pleasant surprise to see that Aberdeen is serious about ESG issues.

Pension-Fennia is now working on making ESG their way of doing things. In investment categories where Pension-Fennia is directly involved, it is easier to make a difference. For example, the pension fund is a coowner of the Sello shopping centre outside Helsinki: as the first mall in Europe, Sello was recently given the LEED environmental certificate.

”At Aberdeen, ESG has become the way of doing business. We think that choosing the right partner is very important”, says Grannenfelt.

For other types of investments, where Pension-Fennia is involved indirectly, it must rely on its partners.

”We are progressing step by step. Currently we are developing internal tools, thinking of ways to get relevant and reliable information on direct investments, and setting up guidelines for situations when a company does not meet our ESG criteria”, says Salomaa.

”We have limited possibilities to influence the companies that asset management funds have invested in. So our job is to choose the right asset management firms”, says Eeva Grannenfelt, chief investment officer at Pension-Fennia. Pension-Fennia has invested in Aberdeen’s funds for several years.

14 Aberdeen In the Spotlight

“ ESG in pension funds


he SRI team, led by Cindy Rose, conducted a survey on how extensively pension funds in Europe take ESG (Environmental, Social and Governance) concerns into consideration when managing their assets.

In 2007, Pension-Fennia became a UNPRI signatory – one of the first Finnish companies to sign – and since then the company has been working on intergating SRI into all its actions.

Grannenfelt prefers active engagement rather than selling out. ”That should always be the last resort.”

Currently we are developing internal tools, thinking of ways to get relevant and reliable information on direct investments, and setting up guidelines.” Ulla Salomaa

The study, which was carried out this year, showed that European intitutional investors are increasingly making ESG a priority. Nearly two-thirds of the funds have an ESG policy while seventeen per

cent of the funds and eleven per cent of the asset managers in the survey are United Nations PRI signatories. The survey was based on analyses of Requests for Proposals (RFPs) sent to Aberdeen Asset Management,

Aberdeen 15 There has been criticism of SRI, mainly that it jeopardises what should be a pension fund’s utmost goal: a high return on its investments. However, Eeva Grannenfelt points out that ESG is indeed compatible with competitive returns. ”In today’s world you have to focus on competitive returns in the long run. The world is changing fast, making sustainable and responsible investing an important part of risk management.” Eeva Grannenfelt and Ulla Salomaa are well aware that one company’s abilities are not sufficient to influence the whole industry. That is why both are grateful for the UN guidelines. ”All actors in the business have to come together to make a change.” 

The world is changing fast, making sustainable and responsible investing an important part of risk management.” Eeva Grannenfelt

Principles for Responsible Investing In 2005, the United Nations SecretaryGeneral, together with the United Nations Environment Programme Finance Initiative and the UN Global Compact, sat down together with a group of the world’s largest institutional investors with the aim of developing Principles for Responsible Investing.


he United Nations Principles for Responsible Investment were launched in 2006 and are as follows: 1. We will incorporate ESG issues into investment analysis and decision-making processes. 2. We will be active owners and incorporate ESG issues into our ownership policies and practices. 3. We will seek appropriate disclosure on ESG issues by the entities in which we invest. 4. We will promote acceptance and implementation of the Principles within the investment industry. 5. We will work together to enhance our effectiveness in implementing the Principles. 6. We will each report on our activities and progress towards implementing the Principles. The Principles are voluntary and aspirational: there are no minimum entry requirements or absolute performance standards for responsible investments. However, signatories have to report on the extent to which they implement the Principles. There is also a joining fee for becoming a signatory and, in 2012, the UNPRI will implement a mandatory annual fee for signatory status. 

a telephone survey of almost 200 pension schemes across Europe, and a large number of one-toone interviews with other pension professionals. 


a more open future

Fund managers must adapt to more regulation in the future. But with it comes more transparency, and that is a good thing. Text Lena Barner-Rasmussen Photos Marjo Tynkkynen


ue to EU regulations, the environment of the fund management sector will change in the years to come. How the changes will affect all players, from hedge funds to asset management firms, is still an open question. The work on the so-called Alternative Investment Fund Managers (AIFM) Directive has been a long and rocky process – unsurprising really as these are indeed complex matters. One of the persons whose job will be affected by the new directives is Timo Ritakallio, Deputy CEO and head of Investments at Ilmarinen. There is little enthusiasm from people in the industry about the regulations that are in progress, but Ritakallio says he sees regulation as something positive.

Knowing that your partners comply with EU regulations makes the investment decision easier to make.”

16 Aberdeen Horizons

Solvency II in a nutshell: • The Solvency II directive sets out new,

• The strengthened regime should reduce

strengthened, EU-wide requirements on

the possibility of consumer loss or market

capital adequacy and risk management

disruption in insurance.

for insurers, with the aim of increasing policyholder protection.

Aberdeen 17 ”The new directive will increase transparency in investment types in which Ilmarinen has made substantial investments, and that, I think, is a good thing.” Ritakallio shoulders the responsibility of managing 27 billion euros and therefore he wants to make sure that he is dealing with right guys. The 27 billion is invested globally in all possible kinds of instruments. ”The new directive will work as a sort of screening process for us. The regulations will make sure that those who are out on the market are meeting certain criteria. Knowing that your partners comply with EU regulations makes the investment decision easier to make”, says Ritakallio. Critics are afraid that returns will decrease, as the new directive may encourage growing costs through the additional bureaucracy. Ritakallio, relying on his previous experience, rejects the criticism. He has been in the financial business for over twenty years, both in the

Ilmarinen – second largest in Finland Ilmarinen is Finland’s second largest pension

terms. This exceeds the four per cent real

solvency: at the end of September this year,

fund. The market value of Ilmarinen’s

term objective for returns which is most

the company’s solvency capital was six billion

investements is 27,3 billion euros. Since 1997,

commonly used as a base for assessing the


the average annual return of Ilmarinen’s

future development of earnings-related

investments has been 4,3 per cent in real

pension contributions. Ilmarinen has a strong

top management of a bank and on the board of Nasdaq OMX Helsinki stock exchange. He is convinced that regulation is necessary. ”At the heart of the financial crisis was the fact that nobody knew what kind of risks people were playing with. Those actions were possible because there wasn’t enough regulation in certain areas”, says Ritakallio. The AIFM Directive has been in the works for two years, and the Council and the Parliament of the European Union recently reached an understanding of the directive after long and tough negotiations. Carl Haglund, a member of the European parliament, has been actively involved in the process. He is content with the result, but says that things did not look too bright one year ago. ”People were drawing too hasty conclusions in the aftermath of the financial crisis. There was a lot of populism among the politicians; everybody seemed to be out to nail anyone in a pin-stripe suit. Some wanted regulation that might have had very negative impacts”, he says.

A big deadlock in the AIFM negotiations concerned the so called passport that is required for managers of all private equity funds. To get a passport, the funds must meet certain criteria. Certain politicians thought that these passports should be out of reach to non-EU funds, substantially limiting pension funds’ investment possibilities by excluding US funds or funds in emerging markets such as India and China. However, in the agreement, reached at the beginning of November, the passport is attainable for non-EU funds as well, making it possible for American funds, for instance, to market their products in the EU.

The future will be more transparent and this in turn will make life safer in the financial markets and elsewhere.” Timo Ritakallio

Another directive that has shaken the pension fund industry concerns solvency issues. The Solvency II directive, which is scheduled to come into effect in December 2012, is primarily aimed at European insurers but the investment management industry will feel its impact too. The Solvency II directive will introduce a new solvency regime. By addressing solvency issues, it is argued that the risks an insurer is exposed to are better reflected. The directive will require risk management to be integrated into day-to-day business decisions – it sounds like more work for insurance people and their software consultants. Even if they may add to the workload in his business, Timo Ritakallio welcomes the new directives. According to him, the future will be more transparent and this in turn will make life safer in the financial markets and elsewhere.

18 Aberdeen Horizons

”The financial markets are the heart of the economy. If they fail, nothing in the economy works.” 

Aberdeen Around the Globe 19

Dad Vail involvement awarded Aberdeen Asset Management Inc. has been named the recipient of the Mutual Fund Education Alliance’s (MFEA) Community Investment Award for 2010. The award was given in recognition of the company’s commitment to community investments, namely the Aberdeen Dad Vail Regatta in Philadelphia, USA. This award is presented annually by the MFEA and was created to recognize the mutual fund firm that most effectively uses its resources to support the community through special programs or partnerships. Aberdeen was commended on the fact, that in addition to the financial contribution, corporate employees also gave their time to serve as event day volunteers and ambassadors.  More on the MFEA:

Jazzy in the UK! Aberdeen Asset Management has teamed up with digital radio station Jazz FM to sponsor their radio show “Jazz in the City”. “Jazz in the City” is live at 6pm (GMT) every Monday evening. Jazz FM is based in London but being a digital radio station, has global online reach. In the show you can hear from influential members of the business community while listening to their favourite jazz, soul and blues songs. Aberdeen Asset Management’s website also offers a “play again” facility of the show with the latest broadcast and links to previous shows.  nsf/aboutus/sponsorshipjazzfm

Fancy a cuppa? Aberdeen’s Hong Kong office has kicked off a bus and subway poster campaign on Aberdeen’s Emerging Market Debt capability. The campaign uses “coffee cups” from different emerging market nations to underscore Aberdeen’s investment process and especially its emphasis on doing personal research. Portfolio managers do all their own research, holding over 100 meetings each year with senior policy makers in over 40 emerging market countries and drink a lot of coffee and tea in the process!  The campaign is available to see online through the Hong Kong website.

Strategy is

a long-term commitment

Marita Loft is the Head of Real Estate Investment Management at SEB Trygg Liv, a life insurance company with a 1.8 billion euro property portfolio. Loft and Pertti Vanhanen, Aberdeen’s Head of Direct Property in Europe, chatted about the challenges and intricacies of the Swedish and European property markets, and about turning existing buildings green. Text Risto Pakarinen Photos Peter Nordahl


ertti Vanhanen: What is your property portfolio like, and how have you gone about building it?

Marita Loft: We focus our operations on a few main regions. Mostly we have properties in Stockholm: Gothenburg takes up 12 percent of our portfolio and Malmö a little less, but we’re trying to find some more properties there.

20 Aberdeen At the Club

The conversation took place on 24th November.

Some 84 percent of our portfolio is office space. We’ve been selling off our residential properties

lately but we’d like to increase the share of residential space to about 15 percent. PV: What’s the best way for you to get good properties in Sweden? ML: It’s not that easy: the construction companies want to build condominiums and act more as developers themselves. We have some lots where we’ll build some residential properties but since little land is available, you have to pay a high price for those.

Aberdeen 21

Properties make up around 11 percent of our portfolio; this is exactly where we like to be - between 10 and 12 percent.”

Our retail properties are mostly High Street shopping locations.

PV: When you invest in new assets, what are the main evaluation criteria?

PV: Some companies think that offices are better investments than shops due to the demographics and the pressure to increase their tax burden: this means that we’ll have less money to spend and I don’t necessarily agree with that.

ML: We prefer properties in the mid-range – up to 500 million SEK – for liquidity reasons and to spread the risk. Mainly, our property portfolio is developed core assets. Of course, we have to take some kind of development risk in order to add value.

ML: Me, neither. Not in Sweden, at least.

PV: The Swedish market has been the fourth most liquid market in Europe so divesting shouldn’t be a problem should you choose to do that. ML: You can always sell property in Central Stockholm but we like to buy property as well as sell in this market. Properties make up around 11 percent of our portfolio; this is exactly where we like to be - between 10 and 12 percent.

Green building is not only about new houses. ”

PV: How has the Swedish property market developed lately?

another. This year has been strong in London, as was last year, but I think it will slow down in the mid-term.

ML: Looking back at the last 15 years, our portfolio has performed at the rate of 9.6 percent. The index has been at nine, so we’ve out-performed our benchmark.

ML: In 2008 and 2009 there was a liquidity problem in the aftermath of the financial crisis, but the rental market was still good: even if the rents fell, there was demand for office space. The rents aren’t falling anymore so the values should go up.

PV: We’re expecting a bit of a dip next year too, but there still seems to be strong cash flow. Do you consider any other countries?

PV: What’s your approach to green buildings?

PV: What about retail and shopping assets?

ML: Not in direct investments. When the life insurance company, SEB Trygg Liv, wants to invest globally, they will do so through SEB’s own funds.

ML: We’ve recently converted light industrial buildings, in a good location, into office space and when we did that we made them green. We’re currently looking at our entire portfolio to see what we can do.

ML: In Stockholm, I think most of the recent largescale projects are still doing well. However, some of the shopping centers may lose customers in the future, especially the ones that have no offices around them. Is the local residents’ weekend shopping enough? We’ll see. PV: The Swedish economy has been strong, but what are the main challenges in the coming years? ML: Sweden is a small country and therefore how the global economy develops has a big impact on Sweden, and the markets. PV: The risks are mainly outside of Sweden? ML: That’s what I think. PV: You have a little bit of exposure to the UK as well. How do you see the UK and specifically the London market developing? ML: Our strategy in the UK is similar to our strategy in Sweden. We only have properties in London’s West End and you can walk from one property to

22 Aberdeen At the Club

Pertti Vanhanen

PV: You said you like to have 11 percent in properties, but what about the allocation between different countries? ML: It will probably remain as is, with 90 percent in Sweden, ten in the UK – in London, specifically. PV: Obviously you have a long-term strategy that you follow with your property investments. How competitive has it been for you?

PV: Most importantly, you gave old buildings a new life instead of taking them down. Green building isn’t only about new houses – 99 percent of the building stock is old. ML: Absolutely. Refurbishing existing buildings would be the most environmental-friendly way of property investing and the best way to be green – just think of all the energy it takes to build a new building. 

How the global economy develops has a big impact on a market as small as Sweden. ” Marita Loft

Aberdeen 23

Discover the benefits of Aberdeen’s bigger umbrella.

In the Nordic region Aberdeen is well-known for property asset management. However, under the Aberdeen umbrella, investors can also find core expertise in a range of equity, fixed income and other alternative assets, packaged in segregated and pooled products across borders. Aberdeen is an independent asset management group and only manages assets for third parties. This allows us to focus solely on our clients’ needs, without conflicts of interest.

So, if you’re looking for an asset manager with skill in all major asset classes, we hope you will consider Aberdeen. For more information on Aberdeen’s offering in the Nordic region, contact Kristina Najjar, Head of Business Development, Nordic region on +468 412 80 00 or visit

We’re backed by our team of 1,800 people, in more than 30 offices, in 24 countries.

Issued and approved by Aberdeen Asset Managers Limited, 10 Queen’s Terrace, Aberdeen AB10 1YG. Authorised and regulated by the Financial Services Authority.

Portfolio 2/2010  

Aberdeens magazine for Nordic investment professionals

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