Background and purpose
The purpose of Nordea’s Pension Foundation (hereinafter foundation) is to grant Nordea Group’s Finnish companies’ persons old age and disability pensions as well as survivors’ and supplementary pensions according to the rules of the foundation.
The investments covering the foundation’s liabilities has been invested according to the applicable regulation in a securing manner, profitably and taking into account the foundation’s liquidity requirements.
One form of investment undertaken by the foundation is to invest in funds encompassing equities issued by companies in the EEA (European Economic Area) that are traded on a regulated market.
The foundation hereby provides the following statements in accordance with the Pension Foundations Act (in Finnish “Eläkesäätiölaki”, 29.12.1995/1774).
Policy for shareholder engagement
The foundation has engaged Nordea Investment Management AB (NIM) to manage the foundation’s investments in accordance with the principle of full discretionary management. Thus NIM regularly makes the decisions about the foundation’s investments within the framework of the agreement.
NIM instructs Nordea Funds Ltd (NF) or Nordea Investment Funds S.A. (NIFSA) to manage the funds included in the foundation’s portfolio. NF and NIFSA apply their own internal rules and practices concerning active ownership in their shareholder engagement activities, in which they represent all owners of the funds, including the foundation.
Against this background, the foundation does not conduct any engagement activities on its own, and it is thus not relevant for the foundation to adopt its own policy for shareholder engagement.
Further information about the engagement activities carried out in relation to the funds managed by NF and NIFSA can be found here.
The short-term investment target is to secure sufficient liquidity so that the pension expenditure and other costs can be covered without unprofitable realisations.
The long-term target is to obtain for the invested assets a total return exceeding the discount rate used to evaluate the liabilities.
The foundation invests its assets only in instruments acceptable as cover for pension liability.
Any investment being into sovereign bonds, credit bonds, equity or real estate (tenants) is assessed with respect to its underlying credit worthiness. The credit quality assessment is based on fundamental analysis of the underlying credit risk focusing on cashflow, liquidity and solvency of the issuer in combination with any potential asset coverage and/or (senior) guarantees. The issuers and the specific issuance’s credit rating by any rating provider is part of this analysis but do not stand alone.
Specifically, the investment into corporate bonds such a high yield bonds is outsourced to specialised asset managers whom have their own internal and sophisticated credit scoring models and conducts their own fundamental analysis.
The equity investments have been made through investments funds in order to ensure the needed diversification.
The foundation’s investments are carried out in accordance with the Nordea Asset Management Responsible Investment Policy (ESG) , which entails, among other things, that sustainability factors are taken into account in investment decisions. This also contributes to ensuring a viable development of the portfolio in the long term.
Agreement with asset manager
According to the agreement with NIM, the foundation receives regular written reports regarding the portfolio’s development, its contents and other matters. In addition, NIM regularly attends the foundation’s board meetings, where NIM presents the portfolio’s development and reports on any relevant market events and market prospects which can potentially affect the portfolio in both the short and long term.
The agreement with NIM applies until further notice, with the possibility for both parties to terminate the agreement after observing a certain period of notice. The fee which NIM receives for their assignment is based on the market value of the foundation’s portfolio. The fee involves a performance-based component in that an increase in the portfolio’s value results in an increase in the fee. Thus, NIM has an incentive to work to ensure that portfolio develops positively in the long-term.
The portfolio’s return after deduction of transaction costs forms the basis of the foundation’s assessment of how NIM has performed its assignment. In this way, the foundation monitors NIM’s costs for the portfolio’s turnover.
The foundation does not monitor the portfolio’s intended turnover rate or limits on the turnover rate. The reason for this is that the foundation instead evaluates NIM’s return after deduction of transaction costs.
The foundation’s follow-up and evaluation of NIM’s assignment, together with the foundation’s possibility to terminate the agreement, encourages NIM to base its investment decisions on assessments of the portfolio companies’ results, in order to ensure that the portfolio gives as good a return as is possible. In the same way, the agreement encourages NIM to engage in the portfolio companies with the aim of improving their results.