Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
PENSION FUNDS’ ROLE AND OPPORTUNITIES IN LONG-TERM INVESTMENTS Idar Kreutzer, CEO, Finance Norway Nordic Conference on Green Investments and Nordic Pension Funds, May 27 2015 2 Risk management - when risks collide 3 Transitioning from high to low carbon economy require significant investment In the next 15 years… 4 Source: Better growth, Better Climate – The New Climate Economy Report Insurers are the largest institutional investors in Europe Source: ”Funding the future”, Oliver Wyman, 2013 5 Liability driven investments Valuing liabilities – and matching the duration 5,5 5 4,5 4 3,5 3 2,5 jan. 05 Assets 100 jan. 06 jan. 07 SEK Liabilities 100 jan. 08 EUR GBP 2 % point fall in rates Source: Bloomberg 20 yrs swap 30% increase in liabilities Stylistic example of liabilities Example: duration 15 If the liabilities' duration is 15, then a 2 percentage points fall in interest rates alters the present value of liabilities with 30% if this change is simply carried through for the purpose of liability valuation Which assets (apart from too few long dated bonds) yield 30% with certainty over 4 months? 6 ? Assets 100 Liabilities 130 Limited investments in infrastructure Source: ”Funding the future”, Oliver Wyman, 2013 7 Changing framework conditions affect insurers’ ability to invest long-term A raft of regulatory changes are affecting insurers 8 Source: ”Funding the future”, Oliver Wyman, 2013 Key implications Regulatory asset risk will become a key driver Asset-liability-matching strategically important Increased focus on liquidity and rating Affects insurers’ investment decisions Moving away from long-term assets Distorting effect on financial markets and the economy Higher cost of funding for corporates and governments Source: Oliver Wyman, ”Funding the future”, 2013 9 A perfect match Expected demand for investments in urban infrastructure until 2030 (US$ 1000 billion) Assets under Management, % of GDP Water Energy Roads and railways Ports and airports 0 10 20 30 Source: Deutsche Bank and G20/OECD Policy Note on Pension Fund Financing for Green Infrastructure and Initiatives 10 The responsible investment framework