29.5.2000 2nd Nordic IR-Seminar/E. Grannenfelt 1
Cross-border investment
- wishful thinking?
Eeva GrannenfeltVice President, Capital MarketsPension Fennia
29.5.2000 2nd Nordic IR-Seminar/E. Grannenfelt 2
Cross-border investment - wishful thinking?
AGENDA
Pension Fennia
Investment strategy
* Allowed asset classes
* Efficient frontier
* Equity strategy
* Fixed income strategy
Expectations on IR-personal
Corporate Governance
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PENSION FENNIA
* In Finland the employer is obliged to arrange pension benefits for his employees by taking out insurance in a private pension insurance company or by establishing 1 a pension fund.
* 6 pension insurance companies in Finland.
* The market share of Pension Fennia is approximately 10 %.
* The Finnish statutory earnings-related pension scheme is a partially fundedscheme.
* Roughly 3/4 of the premiums are used immediately to pay pensions while the rest is funded for the future.
* Pension Fennia is a part of The Fennia Group. Joint field organisation provides clients with all non-life, pension and life insurance services.
Cross-border investment - wishful thinking?
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INVESTMENT ASSETS, EUR 3.6 million (market value)April 30, 2000
Bonds42 %
Equities30 %
Money Market10 %
Customer Loans3 %
Real Estate11 %
Premium Loans4 %
Cross-border investment - wishful thinking?
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Allowed asset classes
* Equities (Pan-Europe, USA, Asia including Japan)
* Fixed Income (USA, EURO-land, Sweden, U.K.)
* Real estate
* Customer loans
Cross-border investment - wishful thinking?
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INVESTMENT STRATEGY
* Increase the share of equities
* Increase the share of credit risk
* Increase private equity and other alternative assets classes
Cross-border investment - wishful thinking?
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Efficient frontier
* Maximise return with accepted risk level
* Try to achieve optimal long term allocation of assets
Cross-border investment - wishful thinking?
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6.20%
6.30%
6.40%
6.50%
6.60%
6.70%
6.80%
6.90%
7.00%
7.10%
4.00% 4.50% 5.00% 5.50% 6.00%
Volatility, %
Exp
ect
ed
re
turn
, %
12/98
5/99
6/98
7/99 10/99
21 % 19 %
EFFICIENT PORTFOLIO AND CHANGES OF PROTFOLIO
Cross-border investment - wishful thinking?
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Finland 55 %
Pan-Europe25 %
USA12 %
Asia8 %
Small Caps
Global Pharma
Global Techno
Global Active
Emerging markets
Nokia +Sonera33 %
GlobalTelecom
(4 %)
(5 %)
(21 %)
(70 %)
EQUITY STRATEGY: CORE AND SATELITIES
Cross-border investment - wishful thinking?
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15
20
25
30
35
Volatility %
0 10 20 30 40 50 60 70 80 90 100
International %
SHARE OF INTERNATIONAL DIVERSIFICATION AND EXPECTED RISK
Cross-border investment - wishful thinking?
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0
2
4
6
8
10
12
14
16
Aut
o
Ban
k
Bas
ic R
ecou
rces
Che
mic
al
Con
stru
ctio
n
Cyc
lical
Goo
ds &
Ser
vice
Non
-cyc
lical
Goo
ds &
Ser
vice
Ene
rgy
Fin
anci
al S
ervi
ces
Foo
d &
Bev
erag
e
Hea
lthca
re
Indu
stria
l Goo
ds &
Ser
vice
Insu
ranc
e
Med
ia
Ret
ail
Tec
hnol
ogy
Tel
ecom
Pow
er S
uppl
iers
SECTORS
DJ STOXX
DJ EURO STOXX
%
Cross-border investment - wishful thinking?
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0
5
10
15
20
25
Aut
o
Ban
k
Bas
ic R
ecou
rces
Che
mic
al
Con
stru
ctio
n
Cyc
lical
Goo
ds &
Ser
vice
Non
- cyc
lical
Goo
ds &
Ser
vice
Ene
rgy
Fin
anci
al S
ervi
ces
Foo
d &
Bev
erag
e
Hea
lthca
re
Indu
stria
l Goo
ds &
Ser
vice
Insu
ranc
e
Med
ia
Ret
ail
Tec
hnol
ogy
Tel
ecom
Pow
er S
uppl
iers
SECTORS
% DJ STOXX-50
DJ EURO STOXX-50
Cross-border investment - wishful thinking?
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0
10
20
30
40
50
SECTORS
DJ STOXX
DJ EURO STOXX
DJ STOXX NORDIC%
Cross-border investment - wishful thinking?
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Fixed income strategy
* Corporate credit new, but growing asset class
* Only large and rated companies
* USA trend
Cross-border investment - wishful thinking?
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12/1999
Long term
80 % AAA-AAeuro/government
20 % AAA-BBB(ex. government)
minimum 30 % AAA-AAeuro/government max. 70 % AAA-BBB
(ex. government)max .10%
max .10 %
High Yield
International BenchmarkEFFAS, all euro governmet bonds
FIXED INCOME MORE CREDIT
Cross-border investment - wishful thinking?
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0,6
0,7
0,8
0,9
1,0
1,1
1,2
1,3
1,4
0,0 1,0 2,0 3,0 4,0 5,0 6,0
Volatility
To
tal m
on
thly
ret
urn
High
Yield
Investment Grade Government bond
Emerging
Markets
CREDIT RISK AND EFFICIENT FRONTIER
Cross-border investment - wishful thinking?
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EXPECTATIONS ON IR-PERSONAL
1) As means of competition consistent shareholder value an important factor
2) Sufficient and essential information- company- division- sector
3) Annual and quarterly reports- history- expectations
4) Personal contacts
Cross-border investment - wishful thinking?
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Cross-border investment - wishful thinking?
EXPECTATIONS ON IR-PERSONAL
5) Compensation systems- option schemes- other benefits
6) Public relations is part of our corporate government system
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Cross-border investment - wishful thinking?
CORPORATE GOVERNANCE
* The mission of Pension Fennia
* Ethical principles
* Return and risk expectations (diversification and used indices)
* Co-operation with company management
* Voting in annual meetings
* Board of directors
* Dividend policy
* Compensation systems
* Co-operation with other shareholders
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Cross-border investment - wishful thinking?
Monitoring systems
* Legislation and other authorities
* Other interest groups
* Company auditors
* Internal auditors and monitoring systems
* Company meetings (road shows)
* Analysts comments
* Using our voting right
* Going exit (sell your stocks)
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Cross-border investment - wishful thinking?
How to monitor companies outside Finland
* Exit (sell your stocks)
* Proxy voting
* Voting through internet
* Using of corporate monitoring companies
* Co-operation with other owners
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Cross-border investment - wishful thinking?
As a Nordic institutional investor we have to keep in mindafter 1.1.1999
* The group of potential investors has increased significantly
* Indexation; only big well known names
=> more demands are made on investment and management policies