This week Pension Funds Insider spoke to Paal August Nordhagen who is chief investment officer at Norway's Akershus County Council Pension Fund. The fund is currently worth NOK 9.53bn (€1.21bn) and has roughly 25.000 members. Because, unlike some other schemes, it came out on top after the first crisis we asked Nordhagen about his views and strategies on dealing with the current Eurozone troubles

Pension Funds Insider (PFI):How have you fared through the 2007-2008 crisis? And what lessons have you learned from it as a scheme?

Paal August Nordhagen (PAN): We went though it without being forced to sell risky assets, but it was a very stressed period with pressure on our solidity. In the end though it became a "perfect storm", we came out of the crisis with excellent risk adjusted returns.
We have learned from it though. We must monitor the risk in the portfolio and the solidity in the fund more closely and we also need easy access to equity or back up from our sponsors in case of stressed situations.

PFI: What can you tell me about the current Eurozone crisis?

PAN: It is a very serious crisis. The market will decide what will happen. I think you have to let the worst countries go bankrupt and the investors take their losses so that the debt-ridden countries can start with a new debt level, one with terms that are suited to the situation and that are sustainable for them over the next decade.

PFI: Are there any changes that you have implemented in the 07/08 crisis that have worked well for you in assuring the damage is not as severe this time around?

PAN: Yes, we have a more detailed action plan which we use in the case of a distressed situation and currently apply that to prevent the scheme being affected by the current downturn. Our assets are currently only roughly 2% down. This is also down to the fact that we have no direct exposure to the PIIGS.

PFI: In your opinion what is going to happen to the Eurozone and what do you feel will be the consequences for European pension funds.

PAN: I don't know, but I fear that the politicians will mess it up and not let the market clear up the situation as should be done. There is a certain time pressure involved which comes from the market, think of the rising interest rate and this needs to be taken into account.

PFI: For a while there was talk in the EU that institutional investors would have to contribute to solving the Euro crisis? How did you feel about these plans?

PAN:It is simple; investors will contribute when default occurs so why not let the market decide?

PFI: What investment choices/strategies/changes would you say your scheme has applied in the last couple of years that have been beneficial to the scheme and why?

PAN: We have increased our focus on alternative investments to get a better diversified portfolio. This means lower the risk, but sustain the returns. Also we try to diversify over regions and by different managers.

PFI: Could you set out some trends or changes in the current pension landscape in terms of investments that worry you or that you applaud?

PAN: We welcome Solvency II. Through this we will get a focus on the management mechanisms of the pension fund and not on quantitative limitations of asset classes or on just assets itself. We also get more comparable regulation across countries which will make a better competitive environment.

PFI: What do you feel will be the scheme's biggest challenge in the next few years?

PAN: A challenge will be to reach a good risk adjusted return with the current volatility of the markets. Another thing we need to work on is that we need to adjust the portfolio to new regulations. However, this latter is a non-stop challenge......

First published 10.08.2011

azeevalkink@wilmington.co.uk