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Liquid alternatives to play bigger part of pensions portfolios envisions family-owned AM's Head of Nordics

AM Series: Executive Director and Head of Nordics at LGT Capital Partners Tom Haas Carstensen expects pension fund CIOs' appetite for liquid alternatives to soar while traditional long-only managers will face more bumps on their road towards future AUM growth.

Tom Haas Carstensen, Executive Director and Head of Nordics at LGT Capital Partners Photo: PR / LGT Capital Partners

A growing number of Nordic institutions seek to replace part of their fixed income allocations with liquid alternatives, according to Tom Haas Carstensen, executive director and head of Nordics at LGT Capital Partners.

"The low-yield environment is a major issue for pension investors because the expected return on most bonds are negative. Thus, there's a growing recognition within the pension funds' asset management divisions that they have to replace some fixed income exposure in order to deliver satisfying returns," he says.

Carstensen believes that the unprecedented market crash and subsequent rebound will impact how CIOs assess the relative strength of their investment portfolios going forward.

"I believe that the single most important factor for investors will be the ability to create a robust portfolio. Instead of solely focusing on being fully invested all the time, more emphasis will be put on how to reduce downside risk, ultimately generating a higher risk-adjusted return," he says.

LGT Capital Partners manages the endowment fund of the Princely family of Liechtenstein. The endowment fund's long term investment objective is to reach two thirds of market upswing during bull markets while only experiencing a third of the market losses in bear markets.

"This crisis has had a major impact on specific sectors and industries, and I think that more institutions will focus increasingly on creating robust and well-diversified portfolios that perform over time rather than making tactical allocations to reap short-term opportunities," Carstensen says.

Risk mitigation

Carstensen is pleased with the first half of 2020 from a business development perspective and is confident about the remainder of 2020. He says that investors have placed capital into a secondary private equity vehicle, some liquid alternatives as well as the asset managers' sustainable equity strategies.

LGT Capital Partners also offers a range of risk mitigating strategies that have performed well in 2020 and provided the downside protection they were put in the world to do, Carstensen highlights. The strategy Dynamic Protection returned more than 30 percent in Q1 by having exposure to various asset classes.

"Our risk mitigating strategies delivered strong returns in March, which led to some renewed inflow in this space from our Nordic investors. The strategies didn't lose significantly during the market rebound which some investors might have been nervous about. The risk mitigating strategies delivered as supposed to and a little extra." Carstensen says.

Alternatives

For the second half of 2020, Carstensen expects that diversification via alternatives and ESG will be the most important themes for Nordic investors.

"The market uncertainty in the wake of covid-19 will keep pushing demand for alternatives and sustainable equities, too. We are well positioned to benefit from this development given our heritage as a family-owned investment house with strong capabilities and a long track record within alternatives and sustainable investments," he says, and adding:

"If you are a traditional long-only manager, you may therefore face more challenging times than we have already been through in recent times."

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