As the deadline for the UK exiting the EU gets closer, IPE spoke to leading investors in Sweden and Finland to find out how they were approaching UK and sterling-denominated assets.

The majority of pension funds in Finland and Sweden do not take specific country views, with UK assets instead forming part of broader European or global portfolios.

SPK, the SEK27bn (€2.5bn) pension fund for savings institutions in Sweden, has approximately 1% invested in sterling assets, according to CIO Stefan Ros. The assets are invested in equities and infrastructure, and the currency is hedged.

“Since the [EU membership] referendum in 2016 we have increased our foreign exchange hedging of sterling,” he added.

So far, however, Ros said that SPK had not excluded future investments in the UK.

When asked about their views on the long-term value of UK assets over the next 5-10 years, most investors referred to the difficulty in assessing political risk, as well as the drawn-out process of establishing a deal between the UK and the EU.

Veritas, the €3.1bn Finnish pension insurer, invests approximately 3% of its total assets in the UK.

Niina Bergring, CIO and deputy CEO of the fund, said the assets were invested in equities, real estate and investment grade credit. The portfolio’s exposure to the UK had not been changed as a result of the 2016 referendum.

“All of our UK investments come from our external funds or mandates, and therefore the only decision left to us is the currency decision,” she said. Currency risk is hedged.

Bergring also pointed out the difficulty in analysing the long-term value of UK assets before Brexit has actually happened.

“It will totally depend on whether they aim for a hard Brexit or choose a more constructive alternative,” she said.

Like her peers, Bergring said a hard Brexit would be very negative for investments, as a result of its effect on the broader economy.

Apteekkien Eläkekassa, the €622m pension fund for privately-owned pharmacies and oldest pension fund in Finland, invests roughly 2% in equity and private equity funds in the UK.

CEO Hannu Hokka said the portfolio was neutrally weighted in the UK compared to indices used. Since Brexit, the fund has not increased its allocation to the UK, but is not hedging currency risk.

Hokka said political risk was always difficult to calculate and calibrate as to what it means, as opposed to market risk.

“The current scenario requires patience and treading carefully,” he said.

Hokka said he was waiting for a normalisation of the situation between the UK and EU, whatever that might mean. Longer-term uncertainty was generally not good news for investors, he added.

“I still hope that the UK will remain in the European Union. That would be a true win-win for everybody. That is up to the island nation to decide, though,” he concluded.

The UK parliament will vote next month on how to proceed with the Brexit process, with multiple reports suggesting that a postponement of the current 29 March deadline is likely.

Meanwhile, UK, EU and US regulators have been making arrangements to ensure that financial services – in particular the multi-trillion-dollar derivatives industry – can continue to operate regardless of the outcome.

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