Denmark became the first country on the Nordic mainland to legislate that large groups should receive financial assistance in old age. From the late 1800s onward, this initiative spread to what is now a diverse and noteworthy pension market. This has been reflected in the individual
, Denmark, Finland, Norway, and Iceland. As a result, the Nordic countries have held a collective position of importance in the
and the global pension landscape. No uniform structure exists across the region, whereas a hybrid system has provided varying pension types such as old-age, obligatory and early retirement. Government initiatives have come in the form of public pension funds and
to support these pension types. Private market players, however, have come in the form of individual employers and firms.
Asset allocation
Irrespective of pension fund structure or size, many follow similar portfolio management practices implementing comparable asset allocation approaches across portfolios. Pension funds have typically split assets among equity, fixed-income, and commercial real estate.
Norway Government Pension Global, a public fund comprising two separate
sovereign wealth funds, one of which is listed on a global scale, has held the majority of its fixed-income securities in the form of bonds. Bonds have formed the second-largest asset group with equities being the largest. This has been a similar portfolio composition to Finnish-based
Keva, an independent pension fund corporation operational on a smaller scale. The largest asset class in both fund portfolios has been equities. Popular equity investments are made in the form of shares or ETFs.
Portfolio management
In comparison to other large institutional investors, pension funds have typically been risk-averse by nature. Pension funds may choose to be more aggressive earlier in the investment lifecycle, investing in illiquidity securities with the aim of achieving higher gains and having the time to recoup any losses endured. This risk is not comparable to that of
hedge funds, for example, that have engaged in activities such as security leveraging to gain high returns. While portfolio risk is lower in the pension fund market, other external factors such as inflation may cause funds to alter the portfolio composition. Inflation has had adverse effects throughout the investment market. Both small and
large pension funds in the Nordics and across the globe have been impacted, the
annual returns of NBIM, for example, can vary by asset class year-on-year. Internal factors have also impacted portfolio management. Policyholders nearing retirement may cause fund managers to allocate a higher level of the portfolio to liquid assets, mitigating risk and allowing for smoother payouts to policyholders.
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