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Nordic-Based Investors in Hedge Funds - September 2012

by Graeme Terry

  • 17 Sep 2012
  • HF

Institutional investors in the Nordic region have been steadily increasing their exposure to hedge funds in recent years as their confidence in the asset class has grown. Many of these investors maintain sizeable hedge fund allocations, although the growing global dissatisfaction with hedge fund returns has led to some investors reducing or completely redeeming allocations to the asset class. Preqin currently tracks 109 Nordic-based institutional investors which are currently active in hedge funds.

In terms of hedge fund investor location, Sweden is the most prominent county in the region, with 40% of all hedge fund investors. The rest of the Nordic hedge fund investor universe includes Finland (26%), Norway (17%), Denmark (13%), and Iceland (5%). The biggest hedge fund investor group in the region is pension funds, with public pension funds and private sector pension funds making up 20% and 17% of the overall universe respectively. Other prominent investor groups include insurance companies (19% of the total), funds of hedge funds (15%) and asset managers (8%).

Multi-strategy hedge funds are most popular among Nordic hedge fund investors, with 40% of all investors indicating this as a strategy preference. Other popular hedge fund strategies with Nordic investors include macro (36% indicate this as a strategy preference), long/short equity (33%), managed futures/CTA (27%), equity market neutral (26%) and event driven (20%). The most common investment approach for investors in the region is to use a combination of single manager hedge funds and funds of hedge funds. Often this will allow investors to combine direct investments in local managers with established funds of hedge funds in order to gain exposure to a wide range of approaches. UCITS hedge funds are also growing in popularity due to the additional liquidity they can provide; 15% of investors indicate they would be interested in such structures.

Nordic investors are often keen to allocate to local hedge funds and indeed some investors have regulations which mean they can only invest with hedge fund managers based in the region. The most popular hedge fund manager in the region is Sweden-based hedge fund manager Brummer & Partners. Prominent hedge fund managers in Sweden also include Cevian Capital, SEB Asset Management and fund of hedge funds manager Indecap. Other hedge fund managers receiving capital from Nordic investors include Finnish fund of hedge funds manager RAM Partners and Norwegian hedge fund manager Sector Asset Management.

As with the overall hedge fund investor universe, the outlook for institutional investors in the Nordic region is mixed. Some investors remain confident in the asset class, with Swedish pension fund AP-Fonden 1 announcing earlier this year that it planned to expand its hedge fund portfolio with a series of new investments. However, there has been evidence of investors losing faith in hedge funds, with the Icelandic State Employees’ Pension Fund among those redeeming from the asset class completely. Managers will have to be able to provide consistent positive returns if they are to convince Nordic investors to continue investing in hedge funds.

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